CHICAGO - Bond insurer Syncora Guarantee lost a key challenge in the Detroit bankruptcy case Friday when a federal judge backed a bankruptcy court ruling that the insurer cannot access the city's casino tax revenue.

Lawyers for Syncora said they intend to appeal the ruling to the Sixth Circuit Court of Appeals later Friday or Monday.

U.S. Bankruptcy Judge Steven Rhodes ruled last August that Detroit's casino tax revenues are part of the bankruptcy estate, and therefore subject to bankruptcy's automatic stay. Syncora insures the interest-rate swaps that use the revenue as collateral.

Rhodes' ruling and the decision affirming it mean the city can continue to access the casino tax revenue, one of its most reliable revenue streams.

Syncora appealed Rhodes' ruling and earlier this month a federal appeals court judge ordered the district court to review the bond insurer's challenge to the status of the status of the casino revenues by July 14. The order marked a rare, if limited, victory for Syncora, one of the chief opponents in the high-profile bankruptcy case.

That victory was short-lived as the speedy review went against Syncora.

U.S. District Judge Bernard Friedman, who presides in the Eastern District of Michigan Southern District shot down Syncora's argument that the casino tax revenues are not part of the bankruptcy estate. Syncora's argument is based on the so-called lockbox procedure, wherein the city deposits its swap payments into a third-party account similar to an escrow arrangement.

Friedman rejected the "escrow" argument, saying the characteristics of the arrangement did not meet the definition because casinos deposited the revenue into the fund but did not retain ownership of the revenues or the account that received the deposited funds.

Friedman also affirmed Rhodes' ruling that the automatic stay exemption cited by Syncora does not apply in the case. The exemption statute "has no bearing on the use of the casino tax revenues to secure the City's swap obligation payments," Freidman wrote.

That's because one of the main purposes of the exemption is to ensure the protection of a pledge of special revenues pledged to bonding and the city's swap obligation was not a form of indebtedness issued to either the swap counterparties or Syncora, Friedman wrote.

Rhodes' original August ruling came about a month after Detroit's historic Chapter 9 filing. Syncora appealed in September.

The district court stayed the appeal and it languished until Syncora successfully asked the appeals court for a writ of mandamus on June 10.

In the appeals court ruling, the judge said Syncora's appeal raised an important question that must be settled before the bankruptcy court rules on the city's plan of confirmation.

"Although mandamus is an 'extraordinary remedy,' these are extraordinary circumstances, and we do not evaluate Syncora's petition in a vacuum," wrote Julia Smith Gibbons of the U.S. Sixth Circuit Court of Appeals.

"If the bankruptcy court confirms the city's plan of adjustment before Syncora obtains judicial review of the merits of its appeal, Syncora may be left with no option but to seek an emergency stay of that plan," Gibbons wrote.

"In a bankruptcy case of such scope and complexity, that is not the proper way to adjudicate appeals that implicate legal questions of fundamental importance to the bankruptcy proceedings," the judge wrote. Without the decision, the city will not know how much it has to repay its creditors, among other factors, the judge wrote.

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