Detroit reaches deal that could speed bankruptcy exit (+video)(Read article summary)
One of the fiercest opponents to the city's original bankruptcy recovery plan, Syncora Guarantee Inc., entered into a tentative agreement with city officials Tuesday.
The city of Detroit has struck a deal with a major bondholder that could expedite the city’s exit from the largest municipal bankruptcy in US history.
Syncora Guarantee Inc., an international bond insurer based in New York and London that had been one of the fiercest opponents of the city’s original bankruptcy recovery plan, entered into a tentative agreement with city officials Tuesday.
US Bankruptcy Judge Steven Rhodes, who was charged with weighing the fairness and feasibility of the city’s financial recovery strategy, postponed proceedings until Monday to allow another major bondholder to review the terms of the agreement, which the two parties say could drastically affect further proceedings.
“If this agreement is finalized within this time period as we expect, it will profoundly alter the course of the proceeding and the litigation plans of the remaining parties,” Detroit and Syncora wrote in a filing Tuesday evening, requesting 48 hours to finalize the “conditions and logistics” of the deal.
Financial Guarantee Insurance Co. (FGIC), another New York-based international bond firm and the only other remaining party opposing Detroit’s bankruptcy plan, successfully petitioned the court to postpone the trial until Monday so that the firm’s lawyers could review the new settlement.
Detroit Mayor Mike Duggan announced Tuesday that the city had resolved ongoing disputes with surrounding communities over water supplies. As part of the deal, the city water department will be converted into the regional Great Lakes Water Authority.
As part of that deal, Wayne, Oakland, and Macomb counties have agreed to withdraw opposition to the city’s restructuring plan during bankruptcy proceedings.
In recent months, the city has struck a series of deals with unions, retirees, and bondholders to reduce outstanding debts.
The city filed for municipal bankruptcy last year after accumulating $18 billion in municipal debts. The city’s original bankruptcy plan called for a $7 billion debt reduction and offered Syncora and FGIC just $0.10 on the dollar for outstanding debts. The new deal with Syncora would boost repayment to $0.26 on the dollar.
Detroit's original bankruptcy plan hinges on a "grand bargain," whereby wealthy donors and Michigan lawmakers injecting more than $800 million into the city’s failing public pension system. That plan would protect the art collection at the Detroit Institute of Art, which would be spun off into an independent trust. Under the plan, thousands of retirees would take a 4.5 percent pension cut to offset the city’s $1.4 billion pension debt.
While the specifics of the new deal are being closely guarded, sources close to negotiations told The New York Times that the agreement would extend Syncora’s lease on the Detroit-Windsor tunnel, grant the insurer access to riverfront properties adjacent to the tunnel, and open up the option of leasing a parking garage for 30 years.
Syncora attorney’s called the deal “a partnership for the future Detroit.”
The agreement also calls for future Syncora investments in Detroit’s crumbling infrastructure, according to Bill Nowling, a spokesman for Detroit emergency manager Kevyn Orr.
“We’re not just giving Syncora anything. They’re going to have to make investments,” Mr. Nowling told the Times.
The city’s bankruptcy hearing began on Sept. 2 and was scheduled to continue through Oct. 17, but the process may end much sooner if the deal with Syncora goes through. Interest-rate swap providers must sign off on the deal before it can be approved.