CHICAGO — Syncora Guarantee, Inc., the bond insurer that wraps some of Detroit's pension certificates, Thursday filed an appeal of Bankruptcy Judge Steven Rhodes' ruling that blocks the insurer's ability to freeze the city's casino revenue.
Syncora had announced in early September that it would appeal Rhodes' Aug. 28 decision.
Syncora filed a lengthy notice Thursday that formally appeals the decision to the U.S. District Court for the Eastern District of Michigan, Southern Division.
It's the latest maneuver in an ongoing dispute over Detroit's proposed settlement with the two banks that are counterparties on interest-rate swaps that hedge $800 million of pension certificates.
Syncora, as well as several other bond insurers and creditors, are fighting the swap settlement, saying it's unreasonably favorable to the counterparties, UBS AG and Merrill Lynch.
The parties met in mediation talks Tuesday and Wednesday. It's unclear whether Syncora's appeal indicates an impasse in the talks. A September hearing that was to address the dispute was postponed to give the parties more time to reach an agreement.
Rhodes' Aug. 28 order concludes that the casino revenue, which acts as collateral on the interest-rate swaps, is the city's property and therefore subject to the automatic stay.
Syncora was trying to freeze the casino revenue until the swap dispute was settled.
Detroit emergency manager Kevyn Orr would pay the counterparties roughly 75 cents on the dollar — and more after a certain point — on a $300 million termination penalty in return for gaining access to the casino revenue.
The bond insurers argue the agreement is unreasonably favorable to the banks and would leave creditors without access to the gambling revenue, the city's third-largest revenue source. Syncora says terminating the swaps would expose it to interest-rate risk on the insured certificates, on which the city defaulted in June.
Syncora is also suing UBS AG and Merrill Lynch in New York to fight the settlement. In both cases, the insurer is seeking to establish its rights with regard to the original pension borrowing, the original swap transaction, a 2009 agreement that pledged the casino revenues as collateral, and the recent swap settlement.
The settlement is important to Detroit because it would give the city access to the roughly $180 million in annual casino dollars, which it wants to use as collateral to secure debtor-in-possession financing.