CHICAGO — U.S. Bankruptcy Judge Steven Rhodes Monday ordered Detroit into mediation with its limited-tax general obligation bondholders and water and sewer holders.
The court action comes a week after which the city won important settlements with its unlimited-tax GO bond insurers as well as its police and fire and general retirees.
The ULTGO deal calls for a 74% recovery rate and the treatment of the voter-approved property tax millage that raises the debt payments as secured. The remaining 26% will go toward the lowest-income pensioners, if Rhodes approves the deal.
Rhodes now wants Detroit to try to reach deals with remaining bondholders. The city will meet with Black Rock Financial Management and Ambac Assurance Corp., who hold the LTGOs. on May 1 at 9 a.m. with Chief Judge Gerald Rosen, who is overseeing all mediation.
On the water and sewer side, Rosen ordered two mediation sessions. On May 1, he wants the city to meet with U.S. Bank NA, which is bond trustee, Black Rock Financial Management, Eaton Vance Management, and Fidelity Management & Research Co.
He ordered mediation on May 2 between the city and U.S. Bank NA, as well as Assured Guaranty Corp., Financial Guaranty Insurance Corp., MBIA/National Public Finance Guarantee Corp., and Berkshire Hathaway Reinsurance Group.
Last week, Rhodes approved a request from Wayne County that requires Detroit to continue negotiations with Wayne, Macomb and Oakland Counties over the lease of the Detroit Water and Sewerage Department to a new regional authority run by the three counties. The talks stalled last month, and the city has since been pursuing a lease or sale with a private firm. But Rhodes said the bankruptcy offers a unique opportunity to try to create the new county-run authority. No date on the court-ordered mediations has been set.
In related news, Syncora Guarantee Inc. on Monday appealed the city's settlement with its interest-rate swap counterparties, which Rhodes approved on April 15. The deal calls for the city to pay UBS AG and Merrill Lynch Capital Services Inc. $85 million to avoid a termination of the swaps, estimated at roughly $288 million.
Syncora, which insures the swaps and could be forced to pay the banks up to $200 million to cover the full cost of the termination payment, appealed Rhodes' decision to the U.S. District Court for the Eastern District of Michigan, Southern Division.
After approving the swaps settlement last week, Rhodes renewed his call for fresh negotiations, urging the city and its creditors to work with mediators to reach settlements.
