On the brink of the August 21 trial for largest municipal bankruptcy in U.S. history, Detroit creditor Syncora Guarantee said in a court filing Emergency Manager Kevyn Orr’s plan to eliminate or reduce billions of dollars in debt is unfair, will be too costly to defend and is doomed to failure. Syncora lawyers said that would “squander a once-in-a-lifetime opportunity to revitalize one of America’s most treasured cities.”
Syncora’s claim on Detroit’s $18 billion debt is about $400 million, and after adjustments for interest rates it said it would receive about 5 cents on the dollar for its debt under Orr’s plan.
Syncora’s claim is tied to an interest-rate swap deal on pension bond debt. The city pledged money from casino revenue taxes as collateral in 2009 to avoid defaulting on past pension debt payments. The swaps allowed Detroit to get fixed interest rates on pension bonds with two banks. The swaps are backed by Syncora, which acts as a trustee and makes payments from casino revenue to parties involved in the swaps. Syncora unsuccessfully tried to keep up to $15 million of monthly casino tax revenue in a bank-held trust but Orr said that money is needed to pay for city services.
In court documents, Syncora said, “While no one questions that the mediators, in their own eyes, pursued what they believed was the best course for the city, the road to an unconfirmable plan is paved with good intentions. The plain truth is that the mediators in this case acted improperly by orchestrating a settlement that alienates the city’s most valuable assets for the sole benefit of one creditor group,” meaning retirees. Syncora has strongly objected to the court-mediated agreement between the state, major corporations and foundations that commits more than $800 million over 20 years to support city retiree pensions.
Syncora lawyer James Sprayregen said the company hopes it can reach an agreement with the city prior to the trial. “Before more scarce resources are squandered, we’d rather get to a consensual deal,” he said, adding if Orr’s plan is confirmed at trial, it eventually would be overturned on appeal.
