CHICAGO - Syncora Guarantee Inc., one of the staunchest opponents to Detroit's proposed bankruptcy adjustment plan, accused the city, federal court mediators, and even the bankruptcy judge himself of unfairly maligning the bond insurer as part of an anti-Wall Street public relations campaign.
"It is no surprise that the city has undertaken a systematic public relations campaign to impugn Syncora and other creditors who are asserting their legal rights in what, by any standard, has been a highly politicized bankruptcy proceeding that has involved, among other things, active legislative lobbying and multiple press conferences by the impartial mediation team whose ostensible task was to bridge the many divides that remain," Syncora said in a brief filed in the bankruptcy court June 9.
"But when the court adds its voice to that chorus, it sanctions the harsh tactics the city has employed against Syncora and pushes further away the hope of a consensual plan," the insurer argued in the brief. "It further emboldens a city that has been openly hostile to the so-called 'Huns of Wall Street,' to use [Detroit emergency manager Kevyn] Orr's term." Syncora made the arguments in a filing that objected to the bankruptcy court's assertion that the insurer is to blame for a three-week delay of a trial on the city's confirmation plan. In his order amending the schedule, Federal Judge Steven Rhodes, who is overseeing the case, blamed Syncora's "unreasonable document production requests" in part for the delay.
"The court's comments left Syncora with no choice but to file this objection, which it does so with continuing respect for the court, and with the hope that the parties to this historic case can yet find a way to bridge their differences, notwithstanding the acrimony that continues to persist," wrote Syncora's attorneys, from Kirkland & Ellis LLP and McDonald Hopkins PLC.
Rhodes issued an order Wednesday to strike the filing. The judge said in his order that there is no provision in the bankruptcy code that allows such a filing.
As it has before, the insurer also argued that Detroit's bankruptcy exit plan is politically popular but unfair and illegal. The plan relies on a so-called "grand bargain" that features $816 million of public and private funds that will go toward Detroit's pensions in exchange for shielding the city-owned art collection from the bankruptcy by transferring it into a charitable trust.
Syncora, along with Financial Guaranty Insurance Co., has repeatedly argued that the grand bargain undervalues the art collection and illegally favors pensioners over other creditors. The city, Syncora said, has never engaged in a serious effort to negotiate a settlement of its $1.4 billion of pension certificates of participation, which are insured by FGIC and Syncora. Syncora also insures the interest-rate swaps that hedge the COPs.
Instead of negotiating a settlement to the COP debt, the city "proposes to confirm a plan that lowers taxes, increases hiring, leaves pensions virtually untouched, provides for $1.5 billion in reinvestment - and maintains its multi-billion dollar art collection," the insurer says. "Syncora's position is simple: Chapter 9 does not allow for politically popular outcomes that are not fair and equitable to all of its creditors and do not satisfy the other plan confirmation standards."
The insurer defended its document requests, saying it has submitted 80 requests for discovery, "a small fraction" of the more than 900 requests the city has received. The insurer also says it has contributed several court-approved motions and other proposals that have made the bankruptcy process more timely and efficient.
In related news, Michigan Attorney General Bill Schuette Wednesday filed a request that the court quash a motion by Syncora to depose the attorney general. Syncora wants to interview Schuette about his opinion, issued last year, that the art collection in the Detroit Institute of Arts cannot be sold because it is in a charitable trust.
The attorney general argued in his court brief that he "has no firsthand knowledge of facts relevant to the determination of the legal status of the DIA's art collection," and that he's unaware of any precedent for a deposition of an attorney general in similar circumstances.
Rhodes set a hearing on June 26 to consider Schuette's request.