Regional News

Ahead of Key Detroit Hearing, Syncora Asks for Delay

CHICAGO — Days ahead of a key hearing on Detroit's proposed interest-rate swap settlement and debtor-in-possession financing, a bond insurer challenging the proposals has asked the court to delay it.

Syncora Guarantee Inc. filed a court brief Wednesday asking U.S. Bankruptcy Judge Steven Rhodes to postpone the hearing to give the insurer more time for discovery. Rhodes said he would consider the request at a hearing Friday, Dec. 13.

A trial on the swaps settlement and the DIP financing is currently set for Dec. 17 to19.Court approval on the settlement is needed to pave the way for the DIP deal, a $350 million loan with Barclays that is also called the Quality of Life financing. A chunk of the proceeds would be used in part to pay off the swap counterparties.

The hearing on the swap settlement has been delayed for months while the parties tried to reach an out-of-court agreement in mediation.

Syncora is one of several creditors fighting the city's settlement with swap counterparties UBS and Merrill Lynch, as well as the $350 million DIP with Barclays. Several bond insurers, unions and pension funds have joined the fight, saying it features overly rich terms for the banks and would decrease overall creditor recoveries.

Rhodes granted Syncora limited discovery related to the swaps dispute three months ago, and the insurer is now asking for broader discovery. The insurer has not been "given the opportunity to discover the source documents and information underlying the need for, and uses of, the [DIP] financing," it said in the brief.

Syncora's brief came two days after the city filed two omnibus responses to objections to the swap settlement and the DIP financing. Detroit's response sparked Syncora's request for more time until the bond insurer has had time to conduct additional discovery.

"Despite describing the city's challenges at length in the DIP motion and offering up witnesses to testify to those challenges, the city subsequently stated that it 'neither needs nor seeks court approval for its governmental decision to spending money on the Quality of Life initiatives,' " Syncora said in its brief.

"The city cannot base its argument in favor of the DIP motion on the challenges facing the city and simultaneously state that the court cannot analyze evidence of those challenges when deciding whether to approve the DIP motion," the brief said.

Syncora wants the city to reveal the specific uses of the proceeds from the Barclays loan to "evaluate whether the DIP financing is, in fact, necessary, reasonable and in the best interests of creditors."

It also wants to see the documents referred to by Detroit emergency manager Kevyn Orr when determining whether the DIP financing was in the best interest of creditors and necessary to enhance the value of the city, according to the brief.

Syncora wants to see documents related to the perceived impact of the DIP financing on creditors' recoveries in the bankruptcy.

The insurer also said it wants to depose Barclays, the service corporations that are part of the original pension certificates structure, the City Council and the swap counterparties.

"The swap counterparties are the only parties able to provide information about their intentions regarding termination of the swap obligations, and potentially acceptable alternatives to the" swap settlement, Syncora argued.

"Since the bulk of the DIP financing will be used to pay the swap counterparties … this information is directly relevant to whether the full amount of the requested borrowing is necessary."

Detroit has also failed to comply with the limited discovery the court already granted the objectors, according to Syncora.

Ambac Assurance Corp., and two European banks that hold some of the city's pension certificates joined Syncora in the brief.





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