Detroit Bankruptcy Judge Rejects Insurer Requests

June 27, 2014

Detroit overcame efforts by bond insurers that might have slowed its plan to exit bankruptcy before the end of the year, while the judge on the case said he was open to taking a bus tour to see what shape the city’s in.

U.S. Bankruptcy Judge Steven Rhodes in Detroit rejected a bid by Syncora Guarantee Inc. to question Michigan Attorney General Bill Schuette, who has endorsed a plan that would safeguard Detroit’s art collection in exchange for hundreds of millions of dollars from philanthropic foundations and the state to shore up pensions.

Detroit filed a record $18 billion municipal bankruptcy in July, saying it couldn’t meet financial obligations while maintaining essential services. The money from the foundations and the state is a key to resolving the case.

Rhodes declined to let bond insurers review documents from the mediation that led to the so-called grand bargain and also asked Syncora to withdraw its request to review the financial information of thousands of retired city workers.

Stephen Hackney, a lawyer for Syncora, said his client wants to know “what went into the deal” and “whose idea was it that this money goes to the retirees.”

Money Raised

Under the court-mediated agreement with the philanthropies, $816 million would be raised from the state and groups including the Ford Foundation and the Charles Stewart Mott Foundation to reduce benefit cuts to pensioners and protect city-owned masterpieces from sale to pay creditors.

Detroit said mediation discussions are private and to release the documents would be improper. Hackney told the judge the foundations aren’t covered by the mediation process. He also said the city had aired confidential information at press conferences and in public statements.

Greg Shumaker, a lawyer for the city, called Syncora’s request “harassment.”

“Do we want to deal with this kind of hassle?” he asked the judge.

Rhodes also said today that he would agree to take a bus tour of the city that Detroit requested, once details including security are resolved. Detroit has said such an inspection is necessary for the judge to understand the need for capital improvements before he begins a trial on the fairness of its debt-adjustment plan.

Kevyn Orr, the city’s emergency financial manager, and other officials have said that after decades of decline and the near-disappearance of manufacturing jobs, city services including street lighting, trash pickup and emergency services are inadequate.

About 60,000 properties, or 15 percent of all parcels in the city, were barren, and at least 78,000 buildings were vacant, including 38,000 deemed potentially dangerous, Orr said in a report last year.

The case is In re City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).

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