The U.S. Court of Appeals in Cincinnati recently ruled that a district court judge must make a decision in the dispute between Syncora Guarantee Inc. and the city of Detroit by July 14. Bond issuer Syncora is appealing a bankruptcy judge’s ruling last year that it cannot freeze casino tax revenue because that money is city property and shielded by the city’s Chapter 9 filing. Detroit receives million in casino tax revenue per month.
The appellate court said, “Whether a substantial revenue stream is rightly considered property of the bankruptcy estate, is precisely the type of issue that should be reviewed before the bankruptcy court confirms the plan of adjustment. Without a final decision on that question, the city will not know what amount its coffers will contribute to the bankruptcy estate, the creditors cannot know the size of the pie they are being asked to share and the bankruptcy court cannot be confident that it is considering a legally and financially viable plan.”
Syncora, along with bond insurers Ambac Assurance Corporation and National Public Finance Guarantee Corporation, will be hit with claims worth hundreds of millions of dollars if Detroit wins approval of its bankruptcy plan. The city filed a record $18 billion bankruptcy last July.
Detroit’s Emergency Manager Kevyn Orr said prior to seeking bankruptcy protection, the city had fought a “running gun battle” with Syncora to protect casino tax revenue, its primary source of cash, from the bond insurer. Orr said Syncora was threatening the city’s casino tax revenue to try to gain an advantage related to pension bonds it had insured.
