| WASHINGTON, July 28
WASHINGTON, July 28 One of the biggest hold-out
creditors in Detroit's bankruptcy will argue next month for a
dismissal of the historic case to lead to more equitable
treatment of all the city's creditors, according to a report
obtained by Reuters on Monday.
Detroit's plan to adjust $18 billion of debt has been
approved by most, but not all, of the city's unsecured
creditors, bringing to center stage the possibility of a 'cram
down,' where the plan could be imposed on objecting creditors if
U.S. Bankruptcy Judge Steven Rhodes determines it is fair and
Restructuring experts for one objector, Financial Guaranty
Insurance Company, plan to testify at a critical confirmation
hearing beginning Aug. 14 against the entire case, the cram down
and the 'grand bargain' intended to ease pension cuts on city
retirees and prevent selling Detroit's art collection.
Dismissing the case would lead to a more equitable treatment
of all unsecured claims and "force the city to implement a more
comprehensive and effective operational restructuring," wrote
Stephen Spencer, managing director at Houlihan Lokey, in the
157-page report, which was commissioned by FGIC.
"Dismissal of the plan would force the city to conduct a
more comprehensive assessment of its ability to pay,
incorporating its legacy balance sheet assets instead of using
Chapter 9 to significantly impair only financial creditors," he
FGIC's experts say the company, which has exposure of more
than $1 billion in the case, faces a proposed minimal recovery
that is at least 50 percentage points less than what members of
Detroit's two retirement systems would receive.
FGIC and Syncora Guarantee Inc., which
has a $400 million exposure, insure pension certificates of
participation that Detroit has asked the bankruptcy court to
In the most recent version of its debt adjustment plan,
Detroit outlined its settlement over the treatment of
limited-tax general obligation bonds with another insurer, Ambac
Assurance Corp, which is set to receive a 34 percent
recovery. That proposed recovery could grow for Ambac and others
if Detroit successfully voids the pension debt.
FGIC plans to continue fighting against the "grand bargain."
FGIC and other creditors want the city to sell or monetize
pieces from the Detroit Institute of Arts to increase settlement
payments, but instead the city has cobbled together pledges
worth $816 million for pension claims.
In the report and a separate art appraisal, FGIC's experts
said the bargain's value is less than the city contends because
the portion due from foundations and the DIA is spread over 20
years and the state's of Michigan's $350 million share was
discounted to an upfront $195 million payment.
Meanwhile, the art collection is worth at least $8.55
billion, nearly double the valuation estimated by an expert
hired by the art institute and city, according to an analysis
for FGIC by Victor Weiner, former executive director of the
Appraisers Association of America.
Detroit's expert, Michael Plummer, pegged the collection's
value at as much as $4.6 billion.
Houlihan Lokey pointed to other city assets that could be
monetized along with art, including the Detroit Windsor Tunnel,
to "generate multiple billions of dollars."
(Reporting by Lisa Lambert; Additional reporting by Karen
Pierog in Chicago; Editing by James Dalgleish)