DETROIT Aug 28 Cash-strapped Detroit can
continue to access an estimated $11 million a month in casino
tax revenue, a U.S. bankruptcy judge ruled on Wednesday, while
the court takes up a deal with creditors related to the revenue.
U.S. Bankruptcy Judge Steven Rhodes, who is overseeing
Detroit's bankruptcy petition, ruled that bond insurer Syncora
Guarantee Inc cannot block the city from using taxes paid by the
city's three casinos.
Rhodes said Syncora does not have a lien on the money used
as collateral since 2009 to secure Detroit's obligations on
interest-rate swap agreements. Detroit entered into those
agreements in conjunction with the sale of pension debt for its
two retirement funds.
Sinking under more than $18 billion in debt and other
obligations, Detroit on July 18 filed for the biggest Chapter 9
municipal bankruptcy in U.S. history. Many bankruptcy experts
believe the case may be a guide for what could happen when other
U.S. cities file for Chapter 9 protection.
Detroit collects about $180 million annually from casinos,
and around $15 million is deposited each month into accounts
overseen by U.S. Bank to meet collateral requirements. The bank
sets aside $4 million a month for quarterly payments to swap
counterparties, leaving the city with about $11 million.
Syncora, which insured the swaps and some Detroit pension
debt associated with the swaps, wanted to stop the city from
accessing the casino revenue. That led Detroit to sue Syncora,
claiming the insurer's action could derail an agreement in
principle over the swaps. Rhodes put that lawsuit and other
litigation on hold.
Detroit has asked Rhodes to approve a deal that could
terminate the swaps, which were used to hedge interest-rate
exposure on some of the pension debt, at a discounted rate of as
much as 25 percent, saving the city more than $70 million.
Monthly payments to swap counterparties from casino revenue
would end if the swaps are terminated.
The deal, involving UBS AG and Merrill Lynch Capital
Services, is the only one with creditors that has been publicly
disclosed by Kevyn Orr, the state-appointed emergency manager
running Detroit since March.
Syncora, other bond insurers, some owners of the pension
debt, Detroit labor unions and others have filed various
objections in court to the deal. The judge has ordered parties
involved in the deal and many of the objectors to attend a
mediation session scheduled for Thursday.
Ambac Assurance Corp, which insures about $170 million of
Detroit general obligation bonds, said in its court filing the
deal "cannot be deemed to be fair and equitable vis-à-vis the
city's other creditors, because the city is overpaying one set
of creditors at the expense of other similarly situated
In June, Orr determined the $1.4 billion of pension debt
sold in 2005 and 2006 was unsecured and allowed a payment
default, forcing Syncora to make a $24.7 million payment to
bondholders. Orr, however, deemed the $300 million owed to swap
counterparties was secured.
A hearing into the swaps agreement initially set for Sept. 9
was pushed back on Wednesday by Rhodes to Sept. 23 to allow
attorneys for the multiple parties involved more time to
DIGITAL 'DATA ROOM'
Rhodes on Wednesday also allowed Detroit's legions of
creditors access to critical financial data without having to
agree not to disclose the information.
Some creditors, including a union representing city workers,
had balked at being required to sign nondisclosure agreements in
order to view 70,000 pages of financial information in a digital
Rhodes agreed to the city's plan to redact personal
information such as Social Security numbers and home addresses
from the documents. The data room would not be open to the
public or news media.