CHICAGO — The 6th Circuit Court of Appeals will hear oral arguments Wednesday on bond insurer Syncora Guarantee Inc.'s appeal of a key decision in the Detroit bankruptcy case.
The federal appeals court had been set to hear arguments appealing the bankruptcy court's decision ruling that the city was eligible for Chapter 9 protection. But the labor groups challenging the eligibility ruling dropped their appeal after reaching settlements with the city.
Syncora, along with bond insurer Financial Guaranty Insurance Co. and holders of the city's' water and sewer revenue bonds, are the last financial creditors who have not yet settled with the city. Syncora has a total of five pending appeals in the case.
Wednesday's hearing will focus on Syncora's appeal of a July 11 ruling from a federal judge that affirmed the Detroit bankruptcy judge's earlier decision that the insurer cannot access the city's casino tax revenue.
U.S. Bankruptcy Judge Steven Rhodes ruled last August that Detroit's casino tax revenues are part of the bankruptcy estate, and therefore subject to bankruptcy's automatic stay. Syncora insures the interest-rate swaps that use the revenue as collateral.
Rhodes' ruling and the decision affirming it mean the city can continue to access the casino tax revenue, one of its most reliable revenue streams.
Syncora appealed Rhodes' ruling in September. The district court stayed the appeal and it languished until Syncora successfully asked the 6th circuit court for a writ of mandamus on June 10. The appeals court ordered the district court to review the bond insurer's challenge to the status of the status of the casino revenues by July 14.
On July 12, U.S. District Judge Bernard Friedman affirmed Rhodes' ruling.
The court that will hear the appeal is the same court that issued the relatively rare writ of mandamus.
The insurer's other appeals include a challenge of Rhodes' decision approving a $120 million debtor-in-possession loan for the city from Barclays. Syncora was joined by European bank EEPK in the original appeal, but the bank has recently sold all its pension certificates to hedge funds, which have not made clear their positions.
Syncora is also appealing the judge's approval of a public lighting authority financing; an $85 million settlement between the city and its two interest-rate swap counterparties; and a secret, or confidential, mediation order that Rhodes issued but has refused to make public.
