CHICAGO -- Bond insurer Financial Guaranty Insurance Co. is asking the judge in Detroit's bankruptcy case to force the city to consider new bids for the collection at the city owned Detroit Institute of Arts museum or to explore other ways to monetize the collection.
FGIC said it has gotten four bids that offer as much as $2 billion for the DIA art.
Bond insurer Syncora Guarantee Inc. and Detroit's largest union, Michigan Council 25 of the American Federation of State, County and Municipal Workers, joined FGIC in the request.
Detroit emergency manager Kevyn Orr is pushing for a so-called grand bargain that 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.
Creditors, including the bond insurers and unions, have said that plan severely undervalues the art collection. 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.
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.
"These are serious potential offers from credible, well-capitalized third parties," Steve Spencer, financial advisor to FGIC, said in a statement. "How can the city even consider blindly forging ahead with the 'Grand Bargain' when presented with real alternatives that would allow it to substantially enhance creditor recoveries (to the tune $1 billion to $2 billion) while maintaining the DIA as a culturally relevant institution?"
If the city fails to take the proposals seriously, it may mean drawn-out litigation, Spencer warned.
"Ignoring the proposals, or failing to cooperate with the interested parties to advance the process, would be another egregious example of the city placing politics over the financial and legal realities of the situation. This would almost certainly result in drawn-out litigation, which no one wants."
FGIC hired Houlihan Lokey Capital Inc., as financial advisor. The firm analyzed the DIA collection, despite 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.
The proposals include Catalyst Acquisitions/Bell Capital Partners, which submitted an initial bid of $1.75 billion for the entire collection. The price reflects the assumption that some of the collection may be restricted from sale, according to the report.
The Art Capital Group bid up to $2 billion for the full DIA collection that would be used as collateral for a loan to the city. The loan would carry an interest rate based on the London Interbank Offered Rate plus 5.5% to 8.5%, with a LIBOR floor of 0.5% and a three- to 10-year maturity.
China-based Yuan Capital offered $895 million to $1.47 million for only 116 pieces in the collection. Poly International Auction, a Chinese art auction house, offered up to $1 billion for the Chinese art collection.
The FGIC advisor began work on June 21, 2013, three days after city filed for bankruptcy, according to his presentation.
Emergency manager Kevyn Orr, who made several television appearances Wednesday to herald the city's proposed settlement with a trio of bond insurers, said he stands by Christie's valuation, and that any new deal would mean the loss of the $816 million in the grand bargain.
