UPDATE: Here is the actual objection filed in court by creditors objecting to the DIA settlement proposed in the city’s bankruptcy case. In it, attorneys argue Judge Steven Rhodes should reject the city’s plans on the grounds that it does not maximize the value of the city’s assets (the artwork).
The national media debuted the collection of stories that emerged this week about the latest genre of proposed deals to monetize the Detroit Institute of Arts holdings in order to pay creditors in Detroit’s bankruptcy case: a proposed $4 billion loan for the city using the artwork as collateral.
The New York Times displayed the flair of pop art in its story:
“On Wall Street, there is the art of the deal. In Detroit, there is the deal of the art,” the paper quipped. “Why not mortgage all the Van Goghs, Picassos and other works in the Detroit Institute of Arts? A company called Art Capital, which makes loans backed by artwork, has told the city it is willing to lend it up to $3 billion, roughly 10 times the exit financing Detroit is now contemplating, using the museum’s art as collateral.”
While the Wall Street Journal seemed more of an Old Master in its no-nonsense news story:
“Art Capital Group raised its proposed loan to Detroit to as much as $4 billion to help ease the city out of bankruptcy, if it uses its art collection as collateral. The art-backed loan is being touted the week before the start of Detroit’s municipal bankruptcy trial as an alternative to the so-called grand bargain, a complex deal using hundreds of millions of dollars in funds from the state of Michigan and private donors to protect the collection at the city-owned Detroit Institute of Arts, while helping to shore up city pension funds.”
The city, for its part, left the canvass blank with officials refusing to even sketch an outline of such a deal, the Detroit Free Press reported:
The city swiftly dismissed Art Capital’s latest proposal. Bill Nowling, a spokesman for Orr, said the city is “100% committed to the grand bargain.”
“The city will not sell or leverage the art,” Nowling said in an e-mail. “This latest proposal is nothing but a thinly veiled attempted by our remaining hold-out creditors to improve their recovery at the expense of the city’s pensioners and its cultural assets.”
In its gallery, the Detroit News displayed the variety of styles that have emerged in Detroit’s bankruptcy case, with bond insurers Syncora and FGIC arguing for sale (and presumably now mortgaging) of the art in order to spread available funds more evenly among creditor classes. The two companies continue their attempts to devalue the “grand bargain,” the deal that brings in $660 million of pensions as long as the DIA collection is protected from sale.
“FGIC and bond insurer Syncora Guarantee Inc. have argued the grand bargain’s 20-year payout is the equivalent of about $400 million in today’s dollars and that more money can be extracted from the city’s art collection through a sale of some or all of the 60,000-piece collection.
Art Capital said it is making the loan at a 5.5 percent to 8.5 percent interest rate, plus the LIBOR benchmark interest rate.”
Detroit News columnist Daniel Howes, for his part, deconstructed the motivations of the bond insurers in having Detroit has a subject:
Choosing to dump the grand bargain in favor of the bond insurer-backed Art Capital offer would risk deeper cuts to city pensioners because theoretically larger recoveries would be spread across a broader pool of unsecured creditors, the city says; would saddle Detroit with new debt it cannot easily manage; would ease the financial pain for bond insurers who reaped high yields off risky investments now gone sour.
That’s a) why they call it risk and b) why they created insurance. Detroit’s financial collapse, at least 10 years in the making, was perhaps the poorest-kept secret in American municipal finance, at least to those willing to look deeper than the easy fees and high yields they could reap from a political class too cowardly and too financially unsophisticated to make tough calls.
The bankruptcy trial begins Tuesday and promises to be nothing, if not colorful.