CHICAGO — In the first formal push against Detroit emergency manager Kevyn Orr's restructuring plan, Ambac Assurance Corp. Monday called the plan harmful to the city's future and said it has hired an advisory firm.
The public criticism comes in the fourth week of negotiations between the city and its creditors, including the six monoline bond insurers that wrap most of Detroit's bonds. If negotiations break down, Orr has said he could file for Chapter 9 by as soon as the end of the month.
Ambac said Orr's plan will block the city's access to the capital markets by rendering its general obligation pledge worthless, a restriction that will harm the city as well as Michigan taxpayers.
The state of Michigan is "making a grave error" in supporting the plan, said Harrison Goldin of Goldin Associates LLC, the firm Ambac hired for advice.
Ambac's statement marks the first public criticism by a major creditor of Orr's restructuring plan. The firm insures $171 million of Detroit GO debt, including $93 million of limited-tax GO bonds and $78 million of unlimited-tax GOs.
Orr's controversial restructuring plan, unveiled June 14, divides the city's $17 billion of debt into two categories: secured and unsecured. Orr has categorized as unsecure the city's GO debt that is not backed by a specific revenue lien and said he would default on payments, a move that has stunned the muni bond market.
The plan offers to pay bondholders of unsecured debt between 10 and 20 cents on the dollar.
"A successful revitalization of the city will be dependent upon its ability to access cost-effective financing in the future, including general obligation funding," Ambac said in the statement. "Such access will be needlessly imperiled as a result of the emergency manager's approach and the state's apparent support thereof."
Ambac said it hired Goldin Associates to advise Ambac on Detroit. Harrison Goldin was comptroller of New York City from 1974 to 1989, through the city's fiscal crisis.
Goldin said the state is wrong to support the Detroit plan.
"The state of Michigan is making a grave error in its support for the proposed treatment of the general obligation bonds previously issued by the city of Detroit that are backed by a pledge of the city's full faith and credit," Goldin said. "It is shortsighted to signal to lenders that they cannot trust the city's unconditional pledge to repay its general obligation debts, especially given that the general obligation bonds in question comprise less than 3% of the city's estimate of its liabilities."
Ambac also pledged to honor its clients with full timely payments of debt service.
Orr on Friday sued another insurer, Syncora Guaranty Inc., accusing the firm of illegally trying to access casino revenues and interfering with negotiations with other creditors.
The city carries $963 million of GO bonds. Of that, roughly $205 million of bonds issued in 2008 are uninsured. There is additional debt issued in 2010 and 2012 that is also uninsured, though those are backed by a pledge of state aid payments and are considered secure.