Detroit reaches bankruptcy deal with fiercest creditor

Mon Sep 15, 2014 11:33pm EDT
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By Lisa Lambert

DETROIT (Reuters) - Detroit on Monday officially settled with one of its fiercest creditors, removing a major hurdle for the city to exit its historic bankruptcy but possibly creating another delay in the trial on restructuring its $18 billion in debt and obligations.

The settlement with Syncora Guarantee Inc. – to be included in another version of the plan that will be released late Monday – leaves Financial Guaranty Insurance Co, which has $1.1 billion on the line, as the major holdout creditor.

To retool its case, FGIC asked Bankruptcy Judge Steven Rhode to pause the hearing for a week starting on Friday, after having witnesses testify through Thursday. Rhodes appeared likely to approve the request during Monday afternoon discussions.

The hearing began on Sept. 2 and is scheduled to stretch into October.

If FGIC settles with the city, the trial would be shortened. Still, the city must make the case that its restructuring plan is fair and feasible, requiring it to call numerous witnesses to testify on the soundness of its creditor settlements and financial projections.

David Heiman, whose law firm Jones Day represents Detroit, told Rhodes that Syncora and the city "have laid down their swords."

In a court filing on Monday, Syncora confirmed a "comprehensive settlement" with the city that was still subject to "definitive documentation and resolution of other terms."

Under the deal, Syncora will withdraw all of its objections to Detroit's plan including appeals pending in U.S. District Court and the Sixth Circuit Court of Appeals, Heiman said.   Continued...

A man walk past graffiti in Detroit, Michigan, December 3, 2013. REUTERS/Joshua Lott