The city and bond insurer Syncora are asking Judge Steven Rhodes to delay the bankruptcy case because they’ve reached a tentative agreement, according to documents filed tonight in federal court.
In a Joint Motion filed at 7 p.m., the Bermuda-based bond insurer and the city said they “have reached an agreement in principle and need 48 hours to address certain conditions and logistics.” They also noted that “if this agreement is finalized within this time period as we expect, it will profoundly alter the course of the proceeding and litigation plans of the remaining parties.” (The motion appears below.)
Just 86 minutes later, Judge Rhodes granted the request. Instead of resuming the bankruptcy trial for its seventh day at 8:30 a.m. Wednesday, he will hold a hearing on the request to postpone the trial until Friday.
Syncora stands to lose hundreds of millions of dollars in Detroit’s bankruptcy, and the bond insurer’s attorneys have been among the most aggressive in the 15-month-old case. An agreement between the city and the Bermuda-based insurer would remove one of the biggest obstacles to confirmation of the city’s plan of adjustment.
But the Detroit Free Press’s Nathan Bomey reports that for the deal to go through, UBS and Bank of America need to “agree to release the insurer from its insurance on the swaps,” the controversial pension financing deal engineered by the Kilpatrick administration. In 2005 and 2006, the city secured $1.4 billion in pension financing, insured by Syncora, that later had its floating interest rate converted to a fixed rate in the deal that’s known as the “interest rate swaps.” Casino tax revenue, worth about $16 million monthly, was pledged as collateral.
In April, as part of the bankruptcy case proceedings, Rhodes approved an agreement for the city to pay $85 million of the $285 million owed on the swaps deal and keep the casino tax revenue instead of paying it to banks. (The city, under Emergency Manager’s Kevyn Orr’ direction, is suing the service corporations, challenging the legality of their existence.) Now, according to Bomey’s story today, the banks need to release Syncora from insuring the deal for the company’s deal with the city in the bankruptcy case to be consummated.
The Detroit Free Press bankruptcy reporting team wrote that the deal with Syncora included getting 26 cents on the dollar as well as other conditions. The Detroit News reported that among the agreement’s terms was a 20-cents-on-the-dollar payment to Syncora.