Detroit Slams Loan Offer as Play By Holdout Creditors

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CHICAGO - Detroit said it stands behind the "grand bargain" it values at $815 million as the best solution to aid pensioners and protect the city art museum's collection, as the city plots its exit from Chapter 9 bankruptcy.

The comment from the spokesman for city emergency manager Kevyn Orr Wednesday came in response to a publicized offer from Art Capital Group to loan the city up to $4 billion to deal with its $18 billion debts and fund capital investments. The group's offer would require the city put up the Detroit Institute of Arts' collection as collateral.

"The city will not sell or leverage the art," Orr spokesman Bill Nowling said Aug. 27. "This latest proposal is nothing but a thinly veiled attempt by our remaining hold-out creditors to improve their recovery at the expense of the city's pensioners and its cultural assets."

The city argued that the Art Capital proposal would force drastic, double-digit pension cuts and kill the $815 million for pensions from the so-called "grand bargain" which relies on contributions from not-for-profit foundations, the state, and the museum over the next two decades. The funds would go to stave off deeper cuts to pensions while protecting the museum's assets from sale.

Several bond insurers have blasted the plan for favoring pensioners over other creditors, including bondholders. They are expected to argue during the bankruptcy confirmation trial that begins next week that the city should squeeze more value out of the art collection. Financial Guaranty Insurance Co. solicited the latest, and higher, appraisal.

"The city is 100 % committed to the Grand Bargain because it is the only way to provide $815 million to shore up pensions and protect the art," Nowling said.

Art Capital Group previously offered a $2 billion loan but it was raised due to a more recent appraisal of the collection that put its value at $8 billion. That estimate is higher than one from a firm hired by the city that put the collection's value as high as $4.6 billion. That number was significantly higher than the $850 million estimate the city's bankruptcy exit plan originally included.

"We're prepared to provide a loan, secured by the art collection, that is a balanced, fair and equitable solution for the city so that it can emerge from bankruptcy with the money it needs to secure a better future," Art Capital said in a statement.

Insurer FGIC supports the Art Capital offer.

"It represents a real and viable solution that could enhance recoveries for all creditors by more than $2 billion and catalyze the revitalization of the city, while also keeping the DIA collection in Detroit," FGIC said in a statement.

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