(Recasts throughout with Syncora attorney's statements)
By Karen Pierog
DETROIT, Sept 3 Detroit's chief detractor in its
historic bankruptcy case said it is seeking a 75 percent
recovery on its $400 million exposure after a federal judge
pushed its attorney on Wednesday to reveal a figure.
Marc Kieselstein, an attorney with Kirkland & Ellis
representing hold-out Detroit creditor Syncora Guarantee Inc,
threw out the percentage after being asked for it repeatedly by
U.S. Bankruptcy Judge Steven Rhodes.
The judge, who said Kieselstein made some powerful arguments
in his 2.5 hour opening statement that blasted Detroit's plan to
adjust $18 billion of debt, also insisted on knowing where
Syncora believed the city would get that money.
The attorney mainly pointed to the potential sale or
monetizing of pieces at the Detroit Institute of Arts - an idea
the city took off the table under the so-called grand bargain.
That bargain, a key element in the debt adjustment plan,
would tap $366 million pledged by foundations and $100 million
from the Detroit Institute of Arts (DIA) over 20 years, as well
as a $195 million lump-sum payment from the state of Michigan.
The money would be used to ease pension cuts for city retirees
and prevent the museum's collection from being sold to pay
Kieselstein said the grand bargain allows the city to favor
one group of creditors over others, including the insurers,
resulting in "very significant" discrimination among similarly
situated creditors. Syncora and Financial Guaranty Insurance Co,
which guaranteed payments on $1.4 billion of pension debt, are
facing recoveries of just 10 cents on the dollar or nothing if
the city succeeds in voiding the debt all together.
Bruce Bennett, a Jones Day attorney representing Detroit,
cited complex mathematical comparisons earlier on Wednesday that
he said show no more than mild differences in creditor
recoveries under the plan.
"We think this is the city's last best chance and we think
it will work," Bennett told the judge, who on Tuesday began a
confirmation hearing on Detroit's plan that is scheduled to last
Tossing the case out of bankruptcy court would result in
creditors slugging it out in Michigan courts to squeeze money
from the broke city, according to Bennett.
Kieselstein said the plan consistently skirts federal
bankruptcy law and he presented snippets of taped sworn
depositions of major Detroit officials to underscore Syncora's
contention the city failed to conduct analyses on how creditors
would fare should the bankruptcy be dismissed.
"Evidence will show extreme inattention to the obligation of
minimizing creditor losses," he said, adding the city's case was
predetermined to save some creditors, while damning others,
Detroit, which filed the biggest-ever Chapter 9 municipal
bankruptcy in July 2013, has reached settlements with most of
its major creditors, including the city's retired workers and
two pension funds. Unlimited-tax general obligation bonds would
see a recovery of 74 cents on the dollar - the largest recovery
for bond-related creditors in the plan.
Kieselstein said Detroit was trying to justify uneven
treatment of creditors by citing the financial needs of its
retired workers even though Rhodes has said those needs are not
relevant to the confirmation process.
Syncora and FGIC have pushed to sell or monetize the art,
which was valued at $8 billion in one appraisal, to improve
recoveries for all creditors.
Arthur O'Reilly, the DIA's attorney at law firm Honigman
Miller Schwartz and Cohn, said the city does not have legal
ownership of most of the DIA collection because a "great
preponderance" of the art was given to the DIA Corp, a
non-profit corporation responsible for museum operations. Case
law and Michigan's Attorney General both support the DIA's
contention that the art work cannot be sold to satisfy the
city's debts, he added.
(Reporting by Karen Pierog, additional reporting by Lisa
Lambert in Washington; editing by David Gregorio, Bernard Orr)