Detroit reaches deal that could speed bankruptcy exit
One of the fiercest opponents to the city's original bankruptcy recovery plan, Syncora Guarantee Inc., entered into a tentative agreement with city officials Tuesday.
Detroit has reached a tentative deal to pay a key creditor 26 cents on the dollar and offer it valuable leases, including for the Detroit-Windsor tunnel shown here, a move that that could clear the biggest hurdle in the city's plan to reduce its debts and emerge from bankruptcy protection.
Paul Sancya/AP/File
The city of Detroit has struck a deal with a major bondholder that could expedite the city鈥檚 exit from the largest municipal bankruptcy in US history.
Syncora Guarantee Inc., an international bond insurer based in New York and London that had been one of the fiercest opponents of the city鈥檚 original bankruptcy recovery plan, entered into a tentative agreement with city officials Tuesday.
US Bankruptcy Judge Steven Rhodes, who was charged with weighing the fairness and feasibility of the city鈥檚 financial recovery strategy, postponed proceedings until Monday to allow another major bondholder to review the terms of the agreement, which the two parties say could drastically affect further proceedings.
鈥淚f this agreement is finalized within this time period as we expect, it will profoundly alter the course of the proceeding and the litigation plans of the remaining parties,鈥� Detroit and Syncora wrote in a filing Tuesday evening, requesting 48 hours to finalize the 鈥渃onditions and logistics鈥� of the deal.
Financial Guarantee Insurance Co. (FGIC), another New York-based international bond firm and the only other remaining party opposing Detroit鈥檚 bankruptcy plan, successfully petitioned the court to postpone the trial until Monday so that the firm鈥檚 lawyers could review the new settlement.
Detroit Mayor Mike Duggan announced Tuesday that the city had resolved ongoing disputes with surrounding communities over water supplies. As part of the deal, the city water department will be converted into the regional Great Lakes Water Authority.
As part of that deal, Wayne, Oakland, and Macomb counties have agreed to withdraw opposition to the city鈥檚 restructuring plan during bankruptcy proceedings.
In recent months, the city has struck a series of deals with unions, retirees, and bondholders to reduce outstanding debts.
The city filed for municipal bankruptcy last year after accumulating $18 billion in municipal debts. The city鈥檚 original bankruptcy plan called for a $7 billion debt reduction and offered Syncora and FGIC just $0.10 on the dollar for outstanding debts. The new deal with Syncora would boost repayment to $0.26 on the dollar.
Detroit's original bankruptcy plan hinges on a "grand bargain," whereby wealthy donors and Michigan lawmakers injecting more than $800 million into the city鈥檚 failing public pension system. That plan would protect the art collection at the Detroit Institute of Art, which would be spun off into an independent trust. Under the plan, thousands of retirees would take a 4.5 percent pension cut to offset the city鈥檚 $1.4 billion pension debt.聽
While the specifics of the new deal are being closely guarded, sources close to negotiations that the agreement would extend Syncora鈥檚 lease on the Detroit-Windsor tunnel, grant the insurer access to riverfront properties adjacent to the tunnel, and open up the option of leasing a parking garage for 30 years.
Syncora attorney鈥檚 called the deal 鈥渁 partnership for the future Detroit.鈥�
The agreement also calls for future Syncora investments in Detroit鈥檚 crumbling infrastructure, according to Bill Nowling, a spokesman for Detroit emergency manager Kevyn Orr.
鈥淲e鈥檙e not just giving Syncora anything. They鈥檙e going to have to make investments,鈥� Mr. Nowling told the Times.
The city鈥檚 bankruptcy hearing began on Sept. 2 and was scheduled to continue through Oct. 17, but the process may end much sooner if the deal with Syncora goes through. Interest-rate swap providers must sign off on the deal before it can be approved.