(In paragraph 11, FGIC changes statement to say "billions of
dollars" instead of "more than $2 billion.")
By Karen Pierog
Aug 27 A New York-based specialty finance group
is ready to loan Detroit as much as $4 billion, double its
previous offer, if the bankrupt city uses the masterpieces in
its art museum as collateral, according to a new proposal that
surfaced this week.
Art Capital Group, which offered to loan the city $2 billion
earlier this year, doubled the offer based on a recent appraisal
that determined the Detroit Institute of Arts' (DIA) collection
was worth more than $8 billion.
"We're prepared to provide a loan, secured by the art
collection, that is a balanced, fair and equitable solution for
the city so that it can emerge from bankruptcy with the money it
needs to secure a better future," Montieth M. Illingworth,
spokesman for Art Capital, said in a statement.
Notable works at the DIA include Pieter Bruegel's The
Wedding Dance, Vincent van Gogh's Self-Portrait with Straw Hat
and Rembrandt's The Visitation.
But the city, which filed the biggest-ever municipal
bankruptcy in July 2013, is not entertaining the proposal.
"We think this is a thinly veiled attempt to discredit the
grand bargain," said Bill Nowling, spokesman for Detroit
Emergency Manager Kevyn Orr.
Detroit's plan to adjust $18 billion of debt includes the
so-called grand bargain, which taps $366 million pledged by
philanthropic foundations and $100 million from the DIA over 20
years, as well as a $195 million lump sum payment from the state
of Michigan to ease pension cuts for city retirees and save the
museum's collection from being sold to pay creditors.
Hold-out creditors have attacked the grand bargain, claiming
the deal gives Detroit retirees a bigger recovery than other
similarly situated creditors like themselves.
U.S. Bankruptcy Judge Steven Rhodes, who is overseeing
Detroit's historic case, will start a key hearing on Tuesday to
determine if the city's debt adjustment plan is fair and
Bond insurer Financial Guaranty Insurance Co (FGIC), which
has been advocating tapping into the art collection to satisfy
creditor claims, called the Art Capital proposal "a game
"It represents a real and viable solution that could enhance
recoveries for all creditors by billions of dollars and catalyze
the revitalization of the city - while also keeping the DIA
collection in Detroit," FGIC said in a statement.
Detroit has been working to secure a traditional $300
million loan. Nowling said that deal may be
finalized in the next week or so.
Art Capital said it could tailor the loan amount and the
terms to the city's needs. Interest rates could be based on
LIBOR plus 5.5 to 8.5 percentage points, according to
"The key here is the city engaging with us as a lender to
structure a loan which is flexible, affordable and not
unreasonably burdensome," he said. "Keep in mind that for a city
in bankruptcy these are reasonable rates."
(Reporting By Karen Pierog; Editing by David Gregorio)