A tentative agreement to settle claims between Detroit and one of the most vociferous opponents to its plan to reduce its debt is a key breakthrough that could bring a speedier end to the city’s bankruptcy trial, court documents and an analyst say.
Syncora, an insurer that is owed hundreds of millions of dollars from the city, filed a joint motion with Detroit late Tuesday requesting that the bankruptcy hearing be adjourned until Friday because the two parties had reached an agreement “in principle” and needed time to iron out the details. Bankruptcy Judge Steven Rhodes adjourned the trial until Monday at the request of another creditor.
If the two sides finalize the agreement, it “will profoundly alter the course of the proceeding and the litigation plans of the remaining parties,” the filing says.
Syncora’s possible withdrawal of its objections is significant, said Anthony Michael Sabino, a professor at St. John’s University’s Peter J. Tobin College of Business.
“It’s not just a big deal — this is a huge deal,” he said. “Opposition is falling away very quickly,” and the city’s emergence from Chapter 9 seems closer to reality, he said.
Syncora has waged a bitter battle with the city in recent weeks, at one point accusing a mediator of “colluding” with the city and creditors, a claim that Rhodes called “scandalous and defamatory.”
The creditor was frustrated that a deal had been reached to transfer the works in Detroit Institute of Arts to a public trust and use foundation money to nearly make city pensioners whole, while other creditors were expected to receive pennies on the dollar.
According to a letter to the City Council signed by Detroit emergency manager Kevyn Orr, Syncora would support Detroit’s plan to emerge from bankruptcy in exchange for several conditions that would allow the firm to recoup some money by operating a traffic tunnel and parking garage in the city.
The City Council has 10 days to approve or reject the agreement; if it doesn’t vote, it is considered to have approved it.
Sabino predicted that other creditors may also try to strike deals with the city.
“They’re either going to rush in and strike a similar deal or be left out in the cold,” he said.
A spokesman for Financial Guaranty Insurance Co., another unhappy creditor, said that the company remained open to “good-faith settlement discussions with the city.”
“The latest deal reinforces our view that the city has abundant sources of incremental value available for distribution to Class 9 claimants,” he said. “However, the issue at hand is their willingness to distribute this value fairly and equitably, not the presence of the value itself.”
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