June 11 As Detroit's historic bankruptcy churns
toward a courtroom showdown later this summer, one hold-out
creditor has shifted its line of attack from the city to the
courts and judges who are charged with resolving the case.
Syncora Guarantee Inc, one of the last major creditors still
actively opposing the city's bankruptcy plan, lashed out in
court filings this week against judicial action and inaction,
including recent public comments by a federal judge acting as a
mediator in the case.
The bond insurance company, which is on the hook for
potentially more than $400 million in losses, filed an objection
on Tuesday over being singled out by U.S. Bankruptcy Court Judge
Steven Rhodes on Monday for making "unreasonable" demands for
city documents that contributed to his decision to delay the
start of the key hearing on Detroit's debt adjustment plan to
Aug. 14, from July 24.
On Wednesday, Rhodes rejected Syncora's objection, noting
the filing was outside of bankruptcy court procedures.
In its objection, Syncora complained that court action,
including "multiple press conferences by the impartial mediation
team," was leaving the impression that the court has taken
Detroit's side in an anti-Wall Street public relations campaign
targeting Syncora and other creditors "who are asserting their
"But when the court adds its voice to that chorus, it
sanctions the harsh tactics the city has employed against
Syncora and pushes further away the hope of a consensual plan,"
U.S. District Judge Gerald Rosen, the lead mediator in
Detroit's case, has spoken at two press conferences -- on June 3
with Michigan Governor Rick Snyder and legislative leaders after
the passage of a $195 million state contribution for Detroit
retirees and at the Detroit Institute of Arts' announcement on
Monday of a $26 million commitment from automakers for the
museum's $100 million share of the so-called grand bargain for
Rosen prefaced his remarks by acknowledging the rarity of a
judge speaking at a press conference and then went on to praise
the parties, including philanthropic foundations that pledged
about $366 million, for coming up with money to ease pension
cuts on Detroit's retirees and protecting the museum's art work
from being sold to pay the city's creditors. At the DIA event,
he also cited leaders of Detroit retiree associations who are
supporting the city's plan to adjust $18 billion of debt and
exit the biggest municipal bankruptcy in U.S. history.
Rosen did not mention any hold-out creditors, but said
mediation was ongoing in the case.
Judges have gotten themselves in trouble for speaking
publicly about their cases. U.S. Judge Nancy Gertner in Boston
was removed from a case involving busing of school children
after discussing it with the press. A federal appeals court
warned the judge overseeing Anna Nicole Smith's bankruptcy that
he risked the appearance of impropriety for initiating an
in-court press conference during the case.
"It was very, very unusual," said Eric Brunstad, an attorney
with Dechert LLP, of the judge in Smith's bankruptcy. "It's
really important from a public confidence and fairness
perspective that a judge be perceived as impartial."
But Brunstad said mediators operate in a different context,
and even when the mediator happens to be a judge, they aren't
deciding the case.
"If it's true mediation, it's voluntary and you don't have
to agree," said Brunstad.
Syncora also took aim at the U.S. District Court in Detroit,
contending it was stalling action on the insurer's Sept. 10
appeal of Rhodes' ruling that allowed Detroit access to casino
revenue even though the city defaulted on $1.4 billion of
pension debt in June 2013.
Syncora guaranteed payments on some of the debt and related
interest-rate swap agreements. The company asked a federal
appeals court on Tuesday to force the district court to rule on
the appeal before the bankruptcy case is resolved and money,
including casino revenue, is dispersed.
(Reporting by Karen Pierog; Additional reporting by Tom Hals
and Nick Brown. Editing by Dan Burns and Leslie Adler)