CHICAGO - Bond insurer Financial Guaranty Insurance Company has asked the bankruptcy court overseeing Detroit's Chapter 9 to allow it to intervene in a city lawsuit that attempts to repudiate $1.4 billion of pension certificate debt.
FGIC insures $1.1 billion of the pension debt. Syncora Guarantee Inc. insures $329 million.
In its court brief, filed late Monday on the bankruptcy docket, FGIC says it needs to intervene because its claims will not be adequately represented in the lawsuit otherwise.
Detroit in January sued to repudiate the pension certificates, naming the two service corporations set up in 2005 to issue the pension certificates as defendants.
FGIC argues that the service corporations, which are made up of city officials, will not adequately protect the insurer's interest if the issue goes to court.
Detroit's effort to repudiate the COPs is "opportunistic and revisionist," FGIC argues.
"Courts have not looked favorably on financially troubled municipalities that regret and then seek to unwind past promises, years after such promises were lawfully made, and with the knowledge that innocent third parties have relied to their detriment on such promises," the insurer says, with a reference to Harrisburg, Pa.
Proceeds from the 2005 COPs deal were used to fund the city's two pension systems.
If Detroit is successful in overturning the debt, it could expose the pension systems to claims of "unjust enrichment," said FGIC.
"This in turn raises significant questions about the city's future, including the feasibility of the city's existing proposed Chapter 9 plan. The issues are complicated and there is much at stake," FGIC argues.
As of late Monday, Syncora had not yet filed a response to the city's lawsuit.