CHICAGO - In an attempt to break the logjam blocking a settlement, the federal judge in charge of mediation in the Detroit bankruptcy case has ordered a new round of talks between the city and the holders and insurers of $1.4 billion of pension certificates of participation.
The COP investors and insurers are a key holdout in the city's attempt to strike settlements with major creditors. Detroit wants a settlement in place ahead of the start early next week of the confirmation trial on Detroit's proposed plan of adjustment to deal with its $18 billion of debts.
Mediation has led to settlements with the city's general obligation bondholders, pensioners, and most of its labor creditors. The city also recently reached a settlement with holders of $5.2 billion of water and sewer revenue bonds that led to a tender program financed with a $1.8 billion borrowing Tuesday.
U.S. District Court Chief Judge Gerald Rosen, the lead mediator, filed the order Tuesday calling the COPs parties into a mediation session Wednesday morning at the federal courthouse in Detroit.
"The parties and counsel should be prepared to stay overnight in Detroit for a continuation of the mediation session on Thursday, August 28, 2014 in the event the mediators deem it necessary," Rosen's order said.
Representatives with the ability to enter into a settlement were ordered to appear. The parties include the city, Syncora Guarantee Inc., Berkshire Hathaway Reinsurance Group, Wilmington Trust Co. NA, EEPK Bank and affiliates, as well as Ad Hoc COP holders Dexia Credit Local, Norddeutsche Landesbank Covered Finance Bank, and Financial Guaranty Insurance Co.
Detroit has sued to invalidate the pension certificates, saying it believes they were illegally issued in the original 2005 transaction and therefore do not need to be repaid. The city defaulted on the debt in June 2013 and has offered holders pennies on the dollar.
Syncora, which insures some of the COPs and related interest-rate swaps, has fought the city at every turn and bankruptcy court Judge Steven Rhodes held a hearing Monday over the city's request to strike a portion of Syncora's objection to the confirmation plan and impose sanctions on the insurer.
The city wants Rhodes to strike the portion where Syncora calls the mediation process that led to the so-called "grand bargain" at the center of the city's bankruptcy exit plan unethical, biased, and tainted by politics.
Syncora accused mediators of conspiring to protect pensioners and the Detroit Institute of Arts over bondholders. The "grand bargain" pulls together a stated $816 million of funds from the state and the museum and private foundations to bolster the recovery rates of pensioners. It protects the museum's art collection.
Rhodes said Monday he would issue his ruling before the start of the trial next Tuesday.
The mediation order reminds all parties that the proceedings are confidential.