CHICAGO -- Syncora Guarantee Inc. asked the bankruptcy court overseeing Detroit's Chapter 9 case to delay the city's effort to secure a $120 million debtor-in-possession financing, saying the loan may need to be restructured in light of the court's rejection of a related swaps settlement.
Syncora filed the request Thursday, hours after Judge Steven Rhodes denied the city's proposed $165 million settlement with its swap counterparties.
Rhodes also ruled that he would allow Detroit to pursue a proposed $120 million DIP loan with Barclays. The agreement with Barclays is set to expire at the end of the month.
Proceeds from the Barclays loan, dubbed the "Quality of Life" loan, would go toward improving city services.
Rhodes' approval was based on several conditions, including that the new loan, which relies on a casino revenue lien, is in compliance with the Michigan gaming act.
Syncora's request is an emergency motion asking the court for an administrative stay to give the challengers a chance to file a motion for a stay pending appeal of the ruling.
"Absent that relief, it is possible that the city could attempt to close a revised DIP facility before this court is able to consider the appropriateness of a stay pending appeal," the insurer said in the brief. "And once the DIP facility is closed, Syncora expects that the city and other parties will vigorously argue that any relief on appeal is foreclosed" by bankruptcy code.
The city's DIP agreement with Barclays relies on a lien on the city's casino revenues. Those revenues are currently used as collateral on the swaps, which now remain in place since Rhodes' ruling. The city may want to continue to use the gaming revenues as a lien, and it will take time to decide whether that's legal under state law, Syncora argues.
Or the city may want to pledge an alternative revenue source, as Rhodes suggested in the hearing. In that case, Syncora wants time to review the new pledge.
"Because the swaps will now remain in place ... the Quality of Life financing will likely need to be restructured," the insurer said. "Parties will need a chance to evaluate the restructured facility, and potentially file objections based on the new structure. The court should hear any such objections before the revised DIP facility closes."
Syncora also asked the court to issue a briefing and hearing schedule on the matter.
In a statement issued after Rhodes' ruling, Detroit emergency manager Kevyn Orr said he was "thankful" the court approved the $120 million DIP Loan.
"As recommended, we will continue to work toward a resolution of the pension swaps," Orr said.
