July 15, 2013 / 9:38 PM / in 5 years

Detroit willing to lift restraining order in Syncora suit

* City says it has deal with some creditors

* Details of agreement still undisclosed

By Hilary Russ

July 15 (Reuters) - The nearly bankrupt city of Detroit disclosed in a court filing on Monday that it agreed to dissolve a court order blocking bond insurer Syncora Guarantee from limiting the city’s access to millions of dollars of monthly casino tax revenue.

The insolvent city sued Syncora earlier this month after the insurer allegedly told U.S. Bank, which controls the casino funds that were used as collateral in negotiations with creditors, not to release up to $11 million a month to Detroit, the suit claims.

The city won a temporary restraining order that barred Syncora from interfering with Detroit’s access to the revenue.

Detroit and its state-appointed emergency manager, Kevyn Orr, notified Syncora on Friday that they were willing to lift the order, according to Monday’s court filing.

That same day, the city reached in principal “an important settlement” with unidentified creditors that is expected to be executed later on Monday, the city’s court filing said.

The names of creditors and details of the settlement, revealed about a month after Orr laid out a hard-nosed plan to restructure the city’s debt, were not disclosed.

Until now, Detroit’s only publicly known creditor deal has been an agreement in principal to end swap contracts with counterparties UBS AG and SBS Financial Products Company without having to pay a more than $340 million termination fee.

An attorney for the city referred reporters to a spokesman for Orr, who did not respond to questions about the settlement. A Syncora spokesman did not immediately reply to a request for comment.

In its lawsuit against Syncora, the city claimed that the insurer interfered with Detroit’s efforts to reach the deal on terminating interest rate swap contracts by blocking the release of the casino tax revenue.

The city said those funds were part of ongoing discussions with creditors UBS and Bank of America Merrill Lynch and sought to have the funds released.

With the city in desperate need of cash and the threat of bankruptcy looming, Orr announced in June that it would stop paying on $11.5 billion of unsecured debt, starting with a default on $1.45 billion of pension obligation certificates of participation. Orr also said he considers about $641 million of general obligation debt, including $410 million of unlimited tax bonds, to be unsecured.

At the same time, Orr proposed that all unsecured creditors would receive a pro rata share of $2 billion of notes the city would issue and pay off as its financial circumstances improve.

Syncora covered $24.7 million of the $35.26 million of combined payments due last month on the city’s pension debt as a result of the default.

A bankruptcy filing for Detroit, which has around 700,000 residents, would represent the largest municipal bankruptcy in U.S. history, far surpassing Alabama’s Jefferson County and Orange County in California.

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