A Detroit Deal?: Freep reports unsecured creditors to settle with city

A Detroit Deal?: Freep reports unsecured creditors to settle with city

The city and insurers of general obligation bonds have reached a settlement, the Detroit Free Press reports this morning. Reporter Nathan Bomey writes the city could officially reveal terms of the settlement as soon as today. In the city’s most recent Disclosure Statement, Emergency Manager Kevyn Orr called for paying 15 cents on the dollar on unsecured bonds, which represent about $538 million of Detroit’s billions of dollars in debt and liabilities.

Attorneys are not supposed to reveal details about the talks, but Free Press sources tell Bomey the settlement has been reached. The deal, if approved by Bankruptcy Judge Steven Rhodes, would make it easier for the city to force a settlement on other creditors, including pensioners.

Bomey reports:

The debt included $163.5 million in limited-tax obligations and $374.7 million in unlimited-tax obligations. A source familiar with the settlement — which was negotiated by bankruptcy mediators overseen by U.S. District Chief Judge Gerald Rosen — said the unlimited-tax bondholders will be treated better than limited-tax bondholders. The city won the approval of major bond insurers that will be forced to pay bondholders the difference of the full value of their bonds and the price the city pays when it exits bankruptcy. 

Meanwhile, The Detroit News reports the city and bond insurers had intensified their negotiations since Bankruptcy Judge Steven Rhodes held a February hearing on insurers’ legal action against the city, a claim filed in November that asserted the city was “illegally diverting voter-approved property taxes to the general fund.” That suit was filed by bond insurers National Public Finance Guarantee Corp., Assured Guaranty Municipal Corp. and Ambac Assurance Corp.

News reporter Chad Livengood writes:

The bond insurers argued the tax revenue had to be segregated and used to repay bondholders who financed capital improvements of recreation, public safety, cultural, health and lighting facilities. … On March 24, attorneys for the three bond insurers and Detroit were ordered to attend a closed-door mediation session by Chief U.S. District Court Judge Gerald Rosen, the lead mediator in the bankruptcy case.

  • Luke

    With the situation how it is in Detroit, it’s important that the property problems that arose with bankruptcy are handled correctly. I am a little worried that we wont see results there for quite some time. It’s like the entire city has just shut down. http://www.gibsonraisonsettlements.com.au