Detroit bankruptcy trial on hold after major deal
DETROIT (AP) — A judge on Wednesday suspended Detroit’s bankruptcy trial until next week to give lawyers time to work out the details of a settlement that would satisfy a major creditor that opposed the city’s plan to get on its feet again.
The city reached a deal Tuesday with Syncora, a bond insurer that stood to lose about $400 million under Detroit’s plan to get out of bankruptcy. Detroit would extend Syncora’s lease on a tunnel between the U.S. and Canada and grant it a long-term lease on a downtown parking garage, among other concessions.
Syncora would recover roughly 26 percent of its claim, said Steven Schlein, a spokesman for a law firm representing the company.
Detroit is proposing to get rid of $7 billion in debt and plow $1.7 billion into city services over the next decade. It’s the largest public bankruptcy in U.S. history.
The deal shows how fortunes can quickly change in bankruptcy, even in the middle of trial. Judge Steven Rhodes must decide whether Detroit’s plan is fair to creditors and feasible for the long run.
“It’s always better to be loving rather than fighting,” Syncora attorney Stephen Hackney said outside court.
Syncora is one of many creditors in the case, but it has been one of the loudest. Virtually everyone is backing Detroit’s exit from Chapter 9, even thousands of retirees whose pensions would be cut by 4.5 percent.
On the seventh day of the trial, the judge granted a request to suspend it until Monday, partly to see if Detroit can also reach a deal with another bond insurer with a $1 billion claim, Financial Guaranty Insurance. Rhodes met privately with lawyers from the city and Financial Guaranty immediately after the brief hearing.
“Anything’s possible,” Thomas Cullen, an attorney for Detroit, said after leaving the courthouse.
The latest settlement won’t end the trial but it could shorten it. Rhodes still must hear from many witnesses, including emergency manager Kevyn Orr, who took Detroit into bankruptcy 14 months ago, and Marti Kopacz, an expert hired by the judge to give an opinion on the city’s plan.
Before making peace, Syncora had aggressively challenged its treatment by Detroit and even went after the mediators who have been working behind the scenes for months to broker deals with creditors.
Detroit’s plan is “hopelessly defective,” the bond insurer’s legal team said in May. “If it were an automobile, it would be pronounced a lemon and promptly sent to the scrapyard.”
Rhodes recently said Syncora’s lawyers could face sanctions after a “scandalous and defamatory” filing against Chief U.S. District Judge Gerald Rosen and attorney Eugene Driker, who helped arrange an $816 million bailout of city pensions that also prevents the sale of valuable art.
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