8.29.13

Gambling on Progress.  Meanwhile, in a separate U.S. Bankruptcy courtroom yesterday, U.S. Bankruptcy Judge Steven Rhodes blocked Syncora Guarantee from capturing millions of dollars in monthly wagering tax revenue from Detroit’s three casinos, ruling the money is city property protected by bankruptcy proceedings. Syncora has asserted a right to up to $15 million in monthly casino tax revenues that are subject to a pending settlement with two banks. During Detroit’s fourth day in bankruptcy court, Judge Rhodes said Syncora cannot capture the tax revenue while all legal proceedings involving the city of Detroit are halted during the Chapter 9 bankruptcy process: “The court concludes the casino revenues are protected by the automatic stay.”  Detroit Emergency Manager Kevyn Orr has been seeking court approval to terminate a complicated interest-rate swap financial transaction with UBS and Bank of America that the city used to get fixed interest rates on $1.45 billion in pension bonds. Mr. Orr is proposing to pay the two banks as little as 75 cents on the dollar to settle more than $340 million in debt. Syncora, which insured the swaps, is seeking to be compensated for potential losses UBS and Bank of America have agreed to take. Each month, Detroit’s three casinos deposit about $15 million in city wagering taxes into an account held in trust by U.S. Bank. Under the proposed settlement, which the court has not approved, UBS and Bank of America could get about $4 million monthly, freeing up $11 million for the city to spend on services. In his decision yesterday, Judge Rhodes said: “The fact that the city is not in possession has no consequence in determining whether they are the city’s property…There is no legal support for either of Syncora’s arguments. Syncora is not a swap participant.”

Judge Rhodes yesterday rescheduled a Sept. 9th evidentiary hearing for the city and objectors to produce evidence and witnesses to testify for or against the proposed settlement to Sept. 23-24, in order to give attorneys in the case more time to prepare to take sworn depositions. Judge Rhodes also ruled the media will not be permitted to attend the deposition interviews of witnesses to the swaps agreement and proposed settlement: “The court will order the release of the transcript of the deposition to the press upon their request.”  Detroit Emergency Manager Kevyn Orr and two top city consultants are expected to be deposed in the matter and testify at the evidentiary hearing, during which the city will have four hours to present its case; objectors will be given five hours. Detroit is seeking a quick resolution to the proposed settlement to give the city more money to spending on vital services, according to City Attorney Corinne Ball said.

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