CHICAGO — Bond insurer Financial Guaranty Insurance Co., the last major holdout creditor in Detroit's bankruptcy, is nearing a settlement with the city, according to local news reports.
The bond insurer would get a mix of cash and some downtown Detroit real estate to settle its $1.1 billion claim. The deal echoes the city's recent settlement with bond insurer Syncora Guarantee Inc.
The Detroit News reported late Monday that FGIC would get a piece of proceeds from a bond issue the city will float to finance settlements to other creditors. It's also in line to receive some city assets like real estate on the Detroit River and a 300-space downtown parking garage, according to the report, which cited an anonymous source. Syncora may need to sign off on the real estate deals.
A settlement could be announced as early as today. It would remove the last obstacle to Detroit's effort to win all creditors' support of its bankruptcy plan of confirmation. U.S. Bankruptcy Judge Steven Rhodes would still need to approve the deals, and must ultimately rule that the entire confirmation plan is feasible.
FGIC wraps $1.1 billion of certificates of participation that the city is suing to repudiate. Syncora holds $390 million of the certificates. Syncora's settlement would give the insurer a 14% recovery on the COPs, as well as a mix of downtown real estate and long-term leases on an 800-space parking garage and operation of the Detroit-Windsor tunnel.
Syncora struck its deal with the city three weeks ago, when Kevyn Orr was still emergency manager of the city. Orr handed back the bulk of the control of the city to the City Council and Mayor Mike Duggan last week. That means the council and Duggan will likely have to sign off on a FGIC deal, reports said.
News of the possible settlement came hours after a trial on the city's confirmation plan resumed after a week delay. Detroit's investment banker, Ken Buckfire, is expected to testify Tuesday. Orr could also testify as soon as Tuesday.
Jones Day attorney Dave Heiman, who represents the city, told Rhodes that the city's gaining control over all its operations outside the bankruptcy was a "very momentous occasion."
Earlier Monday, Ernst & Young managing director Guarav Malhotra testified on behalf of the city, outlining its cash position and financial projections over 10-year and 40-year periods.
Detroit's pre-bankruptcy legacy costs were projected to lead to a $4 billion deficit over the next decade, Malhotra said. The city's current cash projections under its debt-shedding plan would allow it to build a 5% reserve over the next 10 years, he said.
Under questioning from Rhodes, Malhotra said one of his concerns was Detroit's ability to implement the confirmation plan.
"The blueprint is existing, but I think the same amount of rigor has to go into the implementation," he told Rhodes, according to reports from the courtroom. Efforts to make city government more effective and raise revenues are complicated and could be difficult, he said.