CHICAGO - Bond insurer Syncora Guarantee Inc.'s settlement with Detroit was the focus of much of the testimony Friday in the federal trial on the city's bankruptcy exit plan.
Emergency Manager Kevyn Orr and a director from investment banking firm Miller Buckfire provided details of the settlement and what it might mean for the city's future.
Syncora and Detroit reached a deal in September, ending the most adversarial relationship in the bankruptcy. The deal features a mix of cash - providing a roughly 14% recovery on the insurer's $400 million certificates claim - as well as real estate and long-term leases on a downtown parking garage and operation of the Detroit-Windsor tunnel.
U.S. Bankruptcy Judge Steven Rhodes questioned Orr on how the settlement might play out.
"The Syncora development agreement appears to intensify and broaden the relationship between Syncora and the city," Rhodes said.
"Yes," Orr said, adding, "I'm hopeful that the marriage will be better than the courtship."
Rhodes asked Orr if the city would be able to enforce the deal to ensure Syncora is meeting its various requirements, such as investing in the parking garage.
Separately, Miller Buckfire managing director James Doak told Rhodes "there's no sweetheart deals" in the Syncora settlement. The value of the land, Doak said, is "not significant" compared with the resources it would take to market the land.
"If somebody puts a building on these dirt lots, the city is still a winner," Doak said.
It's difficult to estimate the worth of the tunnel in part because the state is going to build a new bridge between Detroit and Canada that could siphon off some of the traffic, said Doak.
"Realizing any value on the tunnel and the tunnel leases would be very difficult," he said.
Under questioning by the attorney for Financial Guaranty Insurance Co., now the last major holdout creditor, Doak said the city had not solicited any proposals for alternative uses for the land or the tunnel lease.
Echoing Orr's comments, Doak said the settlement means Syncora will become a partner helping to stabilize and improve Detroit. The insurer is "very much linked to the revitalization and economic activity of the downtown area," he said.
Rhodes also asked Orr to explain why he decided not to sell off the art in the city-owned Detroit Institute of Art. The sale of the art has been one of the most controversial aspects of the case, with FGIC claiming that it's worth up to $8 billion.
The city wants to privatize the museum by shifting it into an independent trust in exchange for stated $800 million in public and private funds that will go toward the city's pensions.
Orr told Rhodes that he believed any sale of the art would have done more damage than good for both the city and the museum.
"I do believe that a one-time sale of city assets - even in cities in distress - is detrimental to the long-term benefit of the city," he said.
Orr said he thought any sale would do "irreparable" harm to the museum by prompting the elimination of a tri-county millage that supports its operations and slashing its donor base.
"In fact, my understanding is the endowment effort they've undertaken has taken a bit of a downfall as they wait to see what happens," the manager said.