As we predicted when it was filed, Judge Rhodes of the U.S. Bankruptcy Court for the Eastern District of Michigan denied today several creditors’ motion to appoint an independent commission to appraise the collection of the Detroit Institute of Arts (owned by the city of Detroit) as part of the city’s ongoing bankruptcy.
The creditors’ chief argument when the motion was filed was that the timetable for the completion of the Christie’s appraisal commissioned by Emergency Manager Kevyn Orr was too uncertain. That was undermined considerably when Christie’s report was completed. When the rumored “Grand Bargain” was disclosed recently, in which several foundations were ready to pledge $330 million to save the collection, the writing was on the wall for the motion for one simple reason: the city can never be compelled to sell the art under Chapter 9 of the Bankruptcy Code. Thus, any monetization of the DIA collection is essentially a windfall for the creditors. Moreover, Orr has still not publicly proposed any sale or loan against the art. Thus, if and when the city proposes a plan of adjustment that includes the charitable pledge, the creditors will be left to argue that the city could have extracted more from charitable foundations. They could never prove that. Only had Orr proposed an actual sale, for a specific price, could the creditors really have argued that a fuller appraisal of more of the collection was necessary. That is, the grand bargain is not contingent on the actual monetary value of the collection (rather on its civic importance), so the creditors cannot really attack its methodology as they might the valuation of another asset.
Judge Rhodes was apparently even more skeptical at the hearing. He reportedly expressed uncertainty as to whether he could even order the appraisal commission that the creditors sought.
Together with a possible pledge of $350 million from Governor Rick Snyder and the State of Michigan, it seems unlikely at this point that Orr will even propose an actual sale of the DIA collection, let alone try to go through with it. Our theory remains that this has been his goal all along (to the creditors’ ultimate benefit), and he is closer today to pulling it all together.