CHICAGO -- U.S. Bankruptcy Judge Steven Rhodes Thursday shot down bond insurers' requests that they be given special access to Detroit's prized art collection for an independent valuation.
Bond insurers Financial Guaranty Insurance Co. and Syncora Guarantee Inc. wanted Rhodes to approve an inspection of the Detroit Institute of Arts museum to help complete their own assessment of the collection.
Facing major losses under Detroit's current bankruptcy plan of debt adjustment, the insurers argued that the art is worth millions more than estimated in a city evaluation, and that the additional amount should be available to pay off debts.
Rhodes held a hearing on the request Thursday. Insurers said they needed to inspect the city owned museum's collection to properly value it, which would have required removing the pieces from the wall, at least temporarily, to photograph the front and back, according to local reports of the hearing.
The DIA fought that, saying it would require scaffolds and technicians, and could harm some of the art.
In his ruling, Rhodes said the creditors failed to prove that they needed special access to the art. They can just buy a ticket to the museum instead, Rhodes reportedly said.
The creditors hope to prove that the art is worth far more than the city and Michigan claim. If successful, they could upend the so-called "grand bargain" that underpins Detroit's entire bankruptcy exit plan. The deal features $816 million of private and state contributions. The money would all go toward pension payments and would protect the art from any future sale.
Nearly all of the settlements the city has won with labor parties, including unions, retirees, and its two pension funds, would fall apart without the additional money from the grand bargain, the city says.
The city is relying on a 2013 valuation by Christie's auction house that put the value of the collection at between $450 million and $860 million.
FGIC said in an earlier court filing it has gotten four bids that offer as much as $2 billion for the DIA art.
In a statement issued after the ruling, FGIC said it remains hopeful that alternative bids will remain on the table.
"We were hopeful that the city would cooperate fully with the four parties that expressed in entering into transactions that would monetize the art, which could generate up to $2 billion," FGIC said. "However, we are pleased the judge will hold the DIA to its commitment to allow access to the art not on display, and hopefully this ruling will not impair the alternative proposals. We maintain that the drastically undervalued DIA settlement under the 'grand bargain' places politics over the financial and legal realities of the situation and will almost certainly result in drawn-out litigation that no one wants."
Christie's assessed only 4% or so of the 65,000-piece collection. FGIC's new bids expand the scope, in one case to include the entire collection. It is unclear how much of the collection is restricted from sale.
FGIC hired Houlihan Lokey Capital Inc. as financial advisor. The firm analyzed the DIA collection, despite what it described as a lack of city input or formal index of the collection, and put together a 256-page catalogue of information concerning the art collection. The firm contacted 38 parties, most of whom are hedge funds. Twenty-four expressed interest and four submitted formal indications of interest.
Rhodes' ruling came as Michigan lawmakers gathered for a third day for a series of hearings on the state's $195 million contribution to the grand bargain. Lawmakers are likely to propose at least a few amendments to the 11-bill package, which outlines the state's contribution as well as a number of criteria Detroit needs to meet. Several of the bills deal with an oversight committee that will govern the city for up to 20 years after it emerges from bankruptcy.
