Another Syncora setback

Another Syncora setback

Detroit’s casino tax revenue will remain protected from creditors during the bankruptcy process, a federal judge ruled today.

U.S. District Judge Bernard Friedman’s order denies a request from a Bermuda-based company that insured some controversial pension debt that was backed by the gaming money. His ruling also complies with an order from the Sixth Circuit Court of Appeals, which said last week that Friedman had to rule by Monday on Syncora’s request.

The issue involves a part of the city’s complicated loan deal to fund pensions. As part of the 2009 financing arrangement, the city deposited payments on pension debt into one account while the casino tax revenue went into a separate, third-party, custodial “lockbox” account. When the city’s debt payment was received by creditors, the casino taxes were released back to the city.

But the city stopped making the debt payments more than a year ago and Syncora, prior to the city’s bankruptcy, had asked a federal court to force the city to release the roughly $15 million it collected monthly from the casinos and make debt payments. The casino monies are the third largest source of city revenue, behind income and property taxes.

After the city filed for Chapter 9, the dispute moved to bankruptcy court. In August, bankruptcy Judge Steven Rhodes ruled that the “lockbox” arrangement kept the casino taxes as a collateral agreement with the financial institutions and the money was not part of the city’s assets. Therefore, his ruling meant, the casino taxes were protected from being paid to creditors during the bankruptcy case.

Syncora appealed Rhodes’s ruling to Friedman, who stayed the issue until last week’s appellate court order that forced today’s ruling:

7.11.14 Friedman’s Order