CHICAGO — The 6th Circuit Court of Appeals has set an accelerated schedule of two weeks to hear bond insurer Syncora Guarantee Inc.'s appeal of a key decision in the Detroit bankruptcy case. The court set a date of July 30 to hear oral arguments, according to Syncora attorneys. That's the same day the court will hear a series of appeals from labor groups to the federal bankruptcy court's decision finding Detroit eligible for Chapter 9 protection.
The two-week schedule to consider the appeal is speedier than a typical 60- to 180-day schedule, attorneys said.
Syncora is appealing 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 appeals 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.
The order marked a rare, if limited, victory for Syncora, one of the chief opponents in the high-profile bankruptcy case. That victory was short-lived, as the speedy review went against Syncora.
U.S. District Judge Bernard Friedman rejected Syncora's argument that the casino tax revenues are not part of the bankruptcy estate. Syncora's argument is based on the so-called lockbox procedure, wherein the city deposits its swap payments into a third-party account similar to an escrow arrangement.
Friedman rejected the "escrow" argument, saying the characteristics of the arrangement did not meet the definition because casinos deposited the revenue into the fund but did not retain ownership of the revenues or the account that received the deposited funds.
Friedman also affirmed Rhodes' ruling that the automatic stay exemption cited by Syncora does not apply in the case. The exemption statute "has no bearing on the use of the casino tax revenues to secure the City's swap obligation payments," Friedman wrote.
That's because one of the main purposes of the exemption is to ensure the protection of a pledge of special revenues pledged to bonding and the city's swap obligation was not a form of indebtedness issued to either the swap counterparties or Syncora, Friedman wrote.
In the appeals court ruling, the judge said Syncora's appeal raised an important question that must be settled before the bankruptcy court rules on the city's plan of confirmation.