June 27 Detroit and a group of hold-out
creditors will meet on Monday over one of the last unresolved
major issues in the city's historic bankruptcy case.
U.S. Judge Gerald Rosen, who is heading mediation in the
case, late on Thursday ordered bond insurance companies and
European banks into mediation with Detroit on $1.4 billion of
certificates of participation (COPs) the city sold in 2005 and
2006 to boost funding for its two retirement systems.
The city proposed minimal recoveries for the COPs in its
plan to adjust $18 billion of debt and exit the biggest
municipal bankruptcy in U.S. history. Detroit, which stopped
paying on the COPs in June 2013, has also asked the federal
court to void the debt all together.
That treatment has rattled bond insurer Syncora Guarantee
Inc, which has emerged as the city's chief nemesis in the case
as it fights for a bigger recovery for its nearly $400 million
exposure, mainly from insuring some of the COPs.
Syncora's attorney, James H.M. Sprayregen, a partner at
Kirkland & Ellis, declined on Friday to comment on the mediation
order. On Wednesday he told Reuters the company was willing to
"We still have hopes of a consensual resolution here and our
door is open for that discussion," he said. "But in the absence
of that we just don't see the appropriateness legally of being
able to confirm this plan when it treats us so massively
differently than the rest of the similarly situated creditors
without in our view a legal basis."
Under the so-called grand bargain in Detroit's plan, city
worker pensions would fare better than the COPs due to money
pledged by philanthropic foundations, the Detroit Institute of
Arts and the state of Michigan.
Kevyn Orr, the city's emergency manager, has reeled in
agreements with several major creditors over certain general
obligation bonds and other matters. But deals with other
creditors, including Syncora and Financial Guaranty Insurance
Co, which also insured the COPs, have not emerged in the months
since the city's bankruptcy filing in July 2013. A FGIC
spokesman declined to comment on mediation.
Syncora unsuccessfully objected to Detroit's plan to settle
interest rate swap deals related to the COPs and had many of its
legal maneuvers blocked by the federal court, with the latest
occurring on Thursday. Syncora and Detroit have
peppered their court filings with colorful barbs aimed at each
Additional parties ordered into mediation over the COPs are
Wilmington Trust Co, Berkshire Hathaway Reinsurance Group and
European banks that own some of the debt. A confirmation hearing
on Detroit's debt adjustment plan is scheduled to begin Aug. 14.
(Reporting by Karen Pierog; Editing by Leslie Adler)