(Reuters) - A settlement has been reached in Detroit’s historic bankruptcy case over the treatment of unsecured limited-tax general obligation bonds, U.S. Bankruptcy Court mediators announced on Friday.
Details of the settlement, reached between the city and two unnamed parties that either own or insure “a large majority” of the bonds, are in “the final documentation process,” and were not disclosed, according to the mediators’ statement.
In its latest debt adjustment plan, Detroit said creditors would only recover an estimated 10 percent to 13 percent on about $163.5 million of limited-tax GO bonds the city had labeled as being unsecured. Payment on most of the debt was guaranteed by Ambac Assurance Corp [ABKFQA.UL], according to city documents.
Earlier this month, Ambac and mutual fund Black Rock Financial Management were ordered into a mediation session with the city that was to take place on Thursday.
“The settlement recognizes the unique status and niche of (limited-tax GO bonds) in the municipal finance market,” the mediators’ statement said, adding that the unnamed insurer will honor “its insurance commitments on the existing policies.”
The mediators added that a few but significant disputes remain in the case. On Aug. 14 a key court hearing will begin to determine if Detroit’s plan to adjust $18 billion of debt and exit the biggest municipal bankruptcy in U.S. history is fair and feasible.
Those disputes mostly involve bond insurers Syncora Guarantee Inc [SYCRFS.UL] and Financial Guaranty Insurance Co [FGIC.UL], which have been pushing for the city to sell pieces at the Detroit Institute of Arts to raise money for creditors.
The so-called grand bargain in the city’s plan was crafted to tap $466 million in funds pledged by philanthropic foundations and the art museum and $195 million from the state of Michigan to ease pension cuts for retired city workers and prevent a sale of art work.
Kevyn Orr, the city’s state-appointed emergency manager, has reeled in settlements in recent months over the treatment of voter-approved unlimited-tax GO bonds and with various retiree groups and others.
On Friday, the American Federation of State, County and Municipal Employees Council 25 - Detroit’s biggest labor union - urged city workers and retirees to vote in favor of Detroit’s debt adjustment plan, according to a statement released by the bankruptcy court, which has set a July 11 voting deadline.
The statement said that tentative deals reached in April giving union members protections under a comprehensive collective bargaining agreement have been completed. Terms of the deals were not disclosed ahead of a member ratification vote and state approval that must be completed by June 30.
Council 25 President Al Garrett said in the statement while the union remains “severely concerned with the way this bankruptcy has been handled from its inception,” the agreements are the best path forward for workers and retirees.
“They simply cannot risk the further serious reductions in pension, pay and job security if the plan, and our collective bargaining agreements, are not approved,” Garrett said.
Reporting by Karen Pierog; editing by G Crosse and James Dalgleish