Bond insurer may oppose new deal to end Detroit swaps
DETROIT, March 5
DETROIT, March 5 (Reuters) - Detroit's latest proposal to end costly interest-rate swaps is likely to be opposed by Syncora Guarantee, an attorney for the bond insurance company said in U.S. Bankruptcy Court on Wednesday.
"There is a likelihood there may be an objection," Stephen Hackney, Syncora's attorney at law firm Kirkland & Ellis, told Judge Steven Rhodes at a status hearing on the city's motion on the swaps deal.
The city on Monday had asked the court to approve a new deal to terminate the swaps, which were used to hedge interest rate risk on some pension debt, at a cost to the city of $85 million.
Syncora, which insured some of the city's pension debt associated with the swaps, as well as the swaps themselves, fought prior deals to end the hedges, claiming that such a move would cause it financial harm.
The bond insurer and other Detroit creditors have also claimed that the city was affording more favorable treatment to swap counterparties UBS AG and Merrill Lynch Capital Services.
Robert Hertzberg, an attorney at law firm Pepper Hamilton who is representing Detroit, asked the judge to hold a March 20 hearing on the swaps deal with the city's emergency manager Kevyn Orr testifying, but Rhodes did not immediately set a date.
He rejected two previous deals on the swaps that carried price tags of $165 million and around $230 million as being too expensive for the city.
The swaps soured when interest rates dropped along with Detroit's credit rating and big termination fees owed to swap counterparties helped push the city in July to file the biggest municipal bankruptcy in U.S. history.
In its motion, Detroit said court approval of the new swaps deal would give the city unfettered access to casino tax revenue used as collateral for the swaps as well as leverage in efforts to win Rhodes' approval of its debt adjustment plan. That plan calls for cuts to worker pensions and even bigger cuts for some bondholders.
Rhodes also heard arguments on the timetable he released last month that set a trial beginning June 16 on the plan's factual issues. Some creditors wanted a trial date in July or September. The judge said he will issue a revised schedule soon.