DETROIT (Reuters) - Mediation for the last, and potentially one of the biggest, settlements in Detroit’s historic bankruptcy case has moved to New York City, a Detroit spokesman said on Thursday, amid a newspaper report that a potential deal with Financial Guaranty Insurance Co [FGIC.UL] is still days away.
Bond insurer FGIC is the last major objector to the largest-ever municipal bankruptcy, with $1.1 billion on the line from guaranteeing payments on city pension debt. Nearly a month ago, Detroit struck a deal with another bond insurer, Syncora Guarantee Inc, which included a financial recovery of 13.7 cents on the dollar and a bevy of real estate transactions encompassing a central parking garage, development options and a lease for part of a tunnel connecting the city to Canada.
Detroit filed for bankruptcy in July 2013, and a federal court hearing on the city’s 1,111-page plan to restructure $18 billion in debt and other obligations began on Sept. 2.
The city’s lawyers have emphasized at the ongoing hearing that a settlement similar to Syncora’s is available to FGIC. The Detroit News has reported that the city is negotiating a deal with FGIC that includes a financial component, land and parking garage leases.
Court-ordered mediation on a possible settlement has moved to New York at the request of Judge Gerald Rosen, who is leading mediation efforts in the case, said Bill Nowling, spokesman for Detroit emergency manager Kevyn Orr, who is participating by telephone. Nowling added that the situation remains fluid and no deal has been reached.
“A potential deal is still at least days away,” the Detroit News reported on Thursday, citing a source familiar with negotiations.
Time, though, is running short.
The city rested its case in the hearing on Monday, and U.S. Bankruptcy Judge Steven Rhodes expects that closing arguments will begin on Oct. 20. After those arguments, Rhodes will render a decision on the plan. If he determines the plan is fair to creditors and feasible for Detroit to enact, he could impose its terms on holdout creditors, leaving FGIC with a total recovery of as little as 10 percent.
Rhodes on Monday pointedly told FGIC and city lawyers he would like to see a new version of the plan containing a settlement “soon.” Rhodes has adjourned the hearing until Tuesday, partly to accommodate FGIC witnesses’ schedules.
Meanwhile, Moody’s Investors Service said on Wednesday that its current Ca rating on the $1.4 billion of Detroit pension debt could fall to the lowest level of C, depending on any settlement with FGIC.
Another bankruptcy-related settlement over Detroit’s water and sewerage department is steaming ahead. The county commissions of Oakland County on Wednesday night and Macomb County on Thursday approved the creation of a regional Great Lakes Water Authority, a week after the Wayne County Commission signed off.
Detroit will continue to own the water and sewer system, which serves residents in the three southeast Michigan counties, and lease it to the authority for $50 million a year for 40 years.
FGIC’s main U.S. office is located in Manhattan. A company representative would not comment on the mediation’s move to New York, citing court-ordered confidentiality.
Additional reporting by Karen Pierog in Chicago; editing by Matthew Lewis