CHICAGO — Bond insurer Syncora Guarantee Inc. is fighting the settlement between bankrupt Detroit and its unlimited-tax general obligation bondholders, saying the deal violates state law and Chapter 9 bankruptcy code.
Syncora, one of the city's staunchest opponents in the bankruptcy case, filed the
The city in April announced it had reached a deal with the three bond insurers that insure most of its ULTGO debt. Assured Guaranty, Ambac Financial Group, and National Public Finance Guarantee Corp. would recover 74% on their claims, up from the city's original offer of 15% recovery.
Detroit would also treat the debt as secured, marking a reversal of its position that the debt is unsecured, and attach an additional lien of state aid to the bonds.
The insurers agreed that the remaining 26% of the tax levy created to pay debt on the bonds could be diverted to set up a fund for the city's lowest-income pensioners.
Syncora argues that there are three primary flaws to the settlement: that the tax levy that services the bonds remains in place although the ULTGO claims are fully resolved; that the deal redirects a piece of the tax levy to recipients not approved by Detroit voters; and that the settlement forces bond holders and insurers to assign their payment rights — on the remaining so-called stub ULTGOs — to a city designee without holders' consent.
Detroit's move to use a portion of the tax levy to pay pensioners — and keep the levy in place after the senior ULTGOs are paid off — is "robbing Peter — i.e., tax payers — to pay Paul — i.e., pensioners," Syncora says.
The insurer made the arguments as part of a request from Federal Judge Steven Rhodes, who is overseeing the case, asked creditors for input on various legal issues.
A trial on the confirmation plan is set to begin Aug. 14.
