Oyez! Syncora Guarantee, one of the last remaining objectors to the Motor City’s plan of adjustment, this week filed documents with the U.S. Bankruptcy Court, objecting to actions not only by the federal bankruptcy court, but also against U.S. District Judge Gerald Rosen, the lead mediator in Detroit’s case. Syncora also took aim at the U.S. District Court in Detroit, contending it was stalling action on its Sept. 10 appeal of Judge Rhodes’ decision that provided Detroit access to casino revenue, despite the city’s default on $1.4 billion of pension debt in June 2013. As it has before, the insurer also argued that Detroit’s bankruptcy exit plan is politically popular, but unfair and illegal, noting it relies on a so-called “grand bargain” that features $816 million of public and private funds that will go toward Detroit’s pensions in exchange for shielding the city-owned art collection from the bankruptcy by transferring it into a charitable trust. Syncora, along with Financial Guaranty Insurance Co., has repeatedly argued that the grand bargain undervalues the art collection and illegally favors pensioners over other creditors. The city, Syncora said, has never engaged in a serious effort to negotiate a settlement of its $1.4 billion of pension certificates of participation, which are insured by FGIC and Syncora. Syncora also insures the interest-rate swaps that hedge the COPs. Instead of negotiating a settlement to the COP debt, the city, Syncora alleged, “proposes to confirm a plan that lowers taxes, increases hiring, leaves pensions virtually untouched, provides for $1.5 billion in reinvestment – and maintains its multi-billion dollar art collection…Syncora’s position is simple: Chapter 9 does not allow for politically popular outcomes that are not fair and equitable to all of its creditors and do not satisfy the other plan confirmation standards.”
Syncora, which could take a loss of as much as $400 million, claimed it had been singled out by Judge Rhodes for making “unreasonable” demands for city documents that contributed to his decision to delay the start of the key hearing on Detroit’s debt adjustment plan from July 24th until August 14th. Syncora, which guaranteed payments on some of the debt and related interest-rate swap agreements, has requested a federal appeals court to force the district court to rule on the appeal before the bankruptcy case is resolved and money, including casino revenue, is dispersed. In its filing, Syncora charged that the federal court’s action, including “multiple press conferences by the impartial mediation team,” was creating a misimpression that the federal court had taken the Motor City’s side in an anti-Wall Street public relations campaign, targeting Syncora and other creditors “who are asserting their legal rights…But when the court adds its voice to that chorus, it sanctions the harsh tactics the city has employed against Syncora and pushes further away the hope of a consensual plan…But when the court adds its voice to that chorus, it sanctions the harsh tactics the city has employed against Syncora and pushes further away the hope of a consensual plan…It further emboldens a city that has been openly hostile to the so-called ‘Huns of Wall Street,’ to use [Detroit emergency manager Kevyn] Orr’s term.” Syncora made the arguments in its filing that objected to the federal bankruptcy court’s assertion that the insurer is to blame for a three-week delay of a trial on the city’s confirmation plan.
Judge Rhodes rejected the company’s objection, noting the filing was outside of bankruptcy court procedures, and issuing an order to strike the filing. The judge said in his order that there is no provision in the bankruptcy code that allows such a filing. In his order amending the schedule, Judge Rhodes blamed Syncora’s “unreasonable document production requests” in part for the delay.
Squash. Michigan Attorney General Bill Schuette Wednesday filed a request that the court quash a motion by Syncora to depose him―Syncora wants to interview the AG about his opinion, issued last year, that the art collection in the Detroit Institute of Arts cannot be sold because it is in a charitable trust. Mr. Scheutte, in his court brief, noted that he “has no firsthand knowledge of facts relevant to the determination of the legal status of the DIA’s art collection,” and that he’s unaware of any precedent for a deposition of an attorney general in similar circumstances. U.S. Bankruptcy Judge Steven Rhodes set a hearing on June 26 to consider Mr. Scheutte’s request.
Motor City Innovation. Detroit Mayor Mike Duggan yesterday announced the creation of a new Innovation District to promote small business growth and create jobs throughout Detroit, naming Nancy Schlichting, CEO of Henry Ford Medical System, to chair a 17-person advisory committee that will create the formal district: “We have right now some great creative energy occurring in downtown and midtown…The focus of the Innovation District will be to create an anchor to support neighborhood business incubators across the city.” The 4.3-square-mile district already holds 55 percent of the city’s jobs, while only being 3.1 percent of its land mass. The exact geographic boundaries of the district have not been drawn, but officials say it will encompass downtown and Midtown and stretch from east to west roughly from I-75 to Woodward Avenue, and north to south from just north of Grand Boulevard to the Detroit riverfront. The Mayor noted that after seeing the success that cities like Boston and Atlanta have had with innovation districts, “We can look around and see what’s already been done…Land-use decisions, zoning decisions, mixed-use buildings help cities thrive.” As proposed, the new district will work to establish neighborhood small business incubators and bring entrepreneurial programs to neighborhoods. NEI Executive Director David Egner described the district concept in terms of four buckets: the first bucket is assuring that entrepreneurs have everything they need; the second bucket is working with real estate and infrastructure to best facilitate the district; the third is policy, and the fourth is finance.
Let There Be Light. Detroit’s Public Lighting Authority, created to take up fixing nonworking streetlights throughout the city, yesterday announced it will issue $185 million in municipal bonds, by way of the Michigan Finance Authority — with an S&P credit rating higher than the Motor City’s—enough funding to make a capital investment in15, 000 more lights for residents, bringing the total number of lights to 64,500 LEDs. The lighting authority was created in February 2013 to replace a city department and was authorized to issue debt to repair a system that left swaths of the city in darkness, with an estimated 40 percent of its 88,000 lights broken. S&P gave the independent lighting authority an A- grade, enough to allow financing new streetlights citywide. 50,000 of the new lights will be new LED — or light-emitting diode — lights that are brighter and last longer than typical sodium lights. The lighting authority’s bonds, issued by the Michigan Finance Authority, are expected to be sold by July 1. The stronger credit rating was aided by U.S. Bankruptcy Judge Steven Rhodes’ ruling in December that the lighting authority, created by the state Legislature in 2012, is independent of the city and that all of the agency’s debts are unaffected by Detroit’s largest-ever U.S. municipal Chapter 9 case. The bonds are to be paid back through an annual $12.5 million utility tax. The agency sold $60 million in bonds in December, which will be paid back with the new bond sale, in addition to the expanded fix for streetlights, the lighting authority said. The Motor City hopes to have all neighborhood streetlights replaced by the end of 2015 and all major thoroughfares completed by the end of 2016. The lighting bonds are backed by $12.5 million collected annually in a utility users’ tax levied by the City of Detroit, although the deal is structured so that Detroit will not have access to the revenue until monthly debt service obligations are met, according to S&P.