Detroit bankruptcy trial on hold as city tries to repay creditor
Michigan's largest city is negotiating with a bond issuer on paring down its debt and may be close to a settlement.
A judge has suspended Detroit's bankruptcy trial until Monday to give the city more time to work out details of a settlement with a major creditor.
The time-out Wednesday also gives the city an opportunity to reach other settlements.
The city reached a deal Tuesday with Syncora, a bond insurer that stood to lose $400 million under Detroit's plan to get out of bankruptcy. Detroit would extend Syncora's lease on a tunnel between the US and Canada and also get a long-term lease on a parking garage.
The financier would get 26 percent of what it's owed.
Judge Steven Rhodes is holding a trial to determine if Detroit's bankruptcy exit plan is fair and feasible. Thousands of retirees would see a 4.5 percent pension cut.
Earlier this summer, the Monitor reported that Syncora and another bond issuer were not happy with a deal the city cut with pensioners, to the detriment of the two companies.
The duo – Financial Guaranty Insurance Co. (FGIC) and Syncora – said they plan to fight the city in federal court, on grounds Detroit is giving a much better deal to city pensioners and is unfairly discriminating against bondholders from whom the city has borrowed heavily. Their complaint comes after two pension groups, made up of retired police, firefighters, and other public workers, voted to accept slightly reduced pensions under the the city's plan to restructure its crippling debt.
“We understand why the retirees and unions voted in favor of the city’s plan – if we were offered a similar deal we too would approve the plan,” FGIC said in a statement. “Unfortunately, the city’s current offer to FGIC … is completely inferior, and until the city treats us fairly, we are compelled to fight for the fair and equitable treatment that is our right under the bankruptcy code.”