07.14.14

Motor City Progress. U.S. Bankruptcy Judge Steven Rhodes has ordered the City of Detroit and several creditors to appear in his courtroom this morning, where he will consider various pending motions—and will hold a confidential hearing to address the Motor City’s request that he take a bus tour of the blighted city. Judge Rhodes, the rhythm guitar leader of his rock band, the Indubitable Equivalents, also added a little bass to his rhythm Friday when he asked U.S. Attorney General Eric Holder to provide his court with a brief by mid-August with regard to whether Chapter 9 municipal bankruptcy is unconstitutional if it impairs the claims of property owners whose land has been seized under eminent domain, or the demands for compensation of people injured in confrontations with the police. In his request for the brief, Judge Rhodes said people in such circumstances were objecting to Detroit’s plans for settling its debts and emerging from bankruptcy. But the key focus of attention in Detroit this morning will be on the election results being tabulated in California over the Motor City’s plan of adjustment, where there appears to be increasing optimism the plan will gain the approval of more
than 32,000 current and future city pension recipients—a win that would constitute a key victory for the city’s efforts to gain the backing of major creditors ahead of the scheduled beginning of its municipal bankruptcy trial next month. The Detroit News Friday reported that more than two-thirds of the members of Detroit Police and Fire and civilian pension plans had voted in favor of the plan as voting came to a close, citing two people briefed on the results. Both plans had also garnered more than two thirds of the total value of the claims — another requirement under federal bankruptcy rules.

Syncora Loses its Bet. U.S. District Judge Bernard Friedman Friday affirmed Judge Steven Rhodes’ decision that tax revenues from three Detroit casinos are property of the bankruptcy estate and subject to an automatic stay freezing lawsuits against the city—thereby ascertaining the revenues are due to the city and may not be garnered by its holdout creditor Syncora Guarantee—a decision rendered just over a week after the 6th U.S. Court of Appeals ordered Judge Friedman to issue a judgment to issue an opinion on the merits of Syncora’s appeal of Judge Rhodes holding last August that the municipal bond insurer could not gain access to the wagering tax revenues that had been pledged five years ago as collateral for interest rate swap payments—a ruling which Syncora appealed last October—with some $15 million in monthly tax revenues from the Motor City’s three casinos at stake. For Syncora, the ante is significant: the bond insurer had insured UBS and Bank of America’s interest rate swap arrangements with the city and now confronts some $276 million in potential losses in the city’s bankruptcy case. Syncora indicated it would swiftly appeal to the 6th Circuit in an effort to see if the issue could not be resolved before the scheduled August 14th commencement of Detroit’s August 14th trial commencement for federal approval of its plan of adjustment of its debts.

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