Aug 26 Detroit and its major hold-out creditors
were ordered on Tuesday into mediation, just a week before a key
federal court hearing is to start in the city's historic
The move followed a Monday hearing before U.S. Bankruptcy
Judge Steven Rhodes on Detroit's objection to bond insurer
Syncora Guarantee Inc's allegations of improper conduct and
conflicts of interest in the case by court-appointed mediators.
U.S. District Court Judge Gerald Rosen, the chief mediator
in the case, set a Wednesday and possibly Thursday mediation
session over $1.4 billion of certificates of participation
(COPs) that Detroit sold in 2005 and 2006 to pay its pension
The session will include bond insurers that guaranteed
payment on the COPs - Syncora and Financial Guaranty
The city, which defaulted on the debt in June 2013 and is
seeking to void it altogether, is offering a recovery of only
pennies on the dollar on the COPs in its plan to adjust $18
billion of debt. Meanwhile, the plan calls for much higher
recoveries for city retirees resulting from the so-called grand
bargain in which philanthropic foundations, the Detroit
Institute of Arts and the state of Michigan would contribute
money to ease pension cuts.
In an Aug. 12 court filing, Syncora lashed out at mediators,
including Rosen, who brokered the grand bargain, which is also
aimed at protecting the museum's artwork from being sold to pay
"The plain truth is that the mediators in this case acted
improperly by orchestrating a settlement that alienates the
city's most valuable assets for the sole benefit of one creditor
group," Syncora's filing stated.
Detroit's attorneys countered by accusing Syncora of making
"false and malicious allegations."
While the city has won settlements with most of its biggest
creditors, Syncora, which has a $400 million exposure mainly
from insuring the COPs and related interest-rate swaps, has
emerged as Detroit's No. 1 opponent in the case.
The bond insurer has objected to almost every twist and turn
in the complicated case. Syncora and FGIC filed motions last
week to bar certain evidence and witnesses from the key
confirmation hearing on Detroit's plan to adjust its debt and
exit the biggest-ever municipal bankruptcy.
That hearing to determine if the plan is fair and feasible
is scheduled to begin Sept. 2.
Syncora has also criticized the speed of the bankruptcy,
filed in July 2013, and asked the court to send the city "back
to the drawing board."
(Reporting by Karen Pierog; Editing by Jan Paschal)