CHICAGO — The judge in Detroit's bankruptcy case ordered the city to meet with its limited-tax general obligation bondholders to try to reach a settlement after months of failed talks.
Bankruptcy Judge Steven Rhodes ordered Detroit and Blackrock Financial Management and Ambac Assurance Corp. into mediation on Thursday June 12.
It's at least the fourth court-ordered mediation session for the two parties. The LTGO holders are among a few remaining major financial creditors not to reach a settlement with the bankrupt city. The three insurers who wrap the city's unlimited-tax GO bonds reached a settlement that calls for a 74% recovery.
Ambac in May filed a challenge to the city's plan of debt adjustment, which was joined by Blackrock. The city has proposed repaying the LTGO holders roughly 10 to 13 cents on the dollar. It's among the lowest recovery offered to any creditor in the city's debt plan.
If the parties don't reach a settlement and the battle goes to trial, it would be the first time that a Chapter 9 court has considered or ruled on the status of limited-tax general obligation bonds.
Ambac insures about $93 million of the $163 million of Detroit LTGOs that are not secured by a lien on state aid. Despite the small size of the debt relative to the Detroit bankruptcy case, the stakes are high for the insurer because the final treatment, determined either in a settlement or a ruling, could serve as an influential example for future recoveries.
Other holdout creditors include holders of $1.4 billion of the pension certificates of participation and bond insurers Syncora Guarantee Inc. and Financial Guaranty Insurance Co.
