(Adds Detroit dateline, byline, hearing on delay set for Wednesday, details of tentative settlement, comment from Syncora attorney, background)
By Karen Pierog and Lisa Lambert
DETROIT Sept 9 (Reuters) - Detroit and one of its last hold-out creditors, Syncora Guarantee Inc, have reached an agreement in principle over the city’s plan to adjust its debt and exit bankruptcy, according to a federal court filing on Tuesday.
The city and the bond insurance company asked the U.S. Bankruptcy Court to suspend an ongoing confirmation hearing on the plan until Friday so they can “address certain conditions and logistics.”
“We also note for the court that if this agreement is finalized within this time period as we expect, it will profoundly alter the course of the proceeding and the litigation plans of the remaining parties,” the filing stated.
In a separate filing late Tuesday, U.S. Bankruptcy Judge Steven Rhodes said he would hear the motion to delay on Wednesday morning.
Syncora, which insured some of the city’s $1.4 billion of pension debt and related interest-rate swaps, emerged as Detroit’s fiercest opponent in the biggest-ever municipal bankruptcy the city filed in July 2013.
The company and its legal team are “hopeful the deal will be finalized in the next 48 hours,” said James H.M. Sprayregen, an attorney from Kirkland & Ellis who represents Syncora.
“There is a tentative agreement between Syncora and the city that we believe is an acceptable resolution for all concerned,” he also said. “Together with the city, we have asked that the trial be delayed for 48 hours so that we can work through certain contingencies contained in the deal, including obtaining full resolution with Bank of America, UBS and other stakeholders.”
Under the tentative deal, the company, which has a $400 million exposure in the case, would bulk up its recovery from the bankrupt city through an extended lease for the Detroit-Windsor tunnel for tunnel operator American Roads, along with nearby vacant properties, according to a source close to the negotiations.
Detroit-based American Roads is a privately held toll operator that went bankrupt last year. To settle swap liabilities with Syncora, it handed over a lease on half of the mile-long international bridge to the bond insurer.
Syncora would also get some city parking revenue.
But the company faces a Friday morning deadline to settle claims and counter claims with swap providers UBS AG and Merrill Lynch Capital Services, a unit of Bank of America, the source said, adding if that does not happen Syncora’s battle against the city in bankruptcy court will resume.
The company had claimed that it faced a much lower recovery than other Detroit creditors, particularly the city’s two pension funds and retired city workers.
It also criticized the court’s mediation process that resulted in the so-called Grand Bargain that taps into money from foundations, the Detroit Institute of Arts and the state of Michigan to ease pension cuts and prevent art work from being sold to pay creditors.
Syncora, along with fellow hold-out creditor and bond insurer Financial Guaranty Insurance Co, had pushed for an art sale or monetization to fatten creditor payments. A spokesman for FGIC had no comment at this time.
News of the tentative deal came the same day as Detroit Mayor Mike Duggan and the heads of three Michigan counties signed a memorandum of understanding concerning the future of the city’s water and sewerage department. As part of that deal, the counties would drop their opposition to the city’s debt adjustment plan, which is the subject of a confirmation hearing that started Sept. 2.
While Detroit’s state-appointed Emergency Manager Kevyn Orr spent most of the morning in court, he was absent during the afternoon proceedings, when Syncora’s attorney extensively questioned a member of the official Detroit retirees’ committee about pension benefits in the city’s plan to restructure $18 billion in debt and exit bankruptcy.
Rhodes had drafted a schedule stretching into mid-October for his hearing on whether the plan is fair and feasible. The water settlement and deal with Syncora, if approved by Rhodes, would possibly cut that schedule short as it would remove most of the remaining big objectors to that plan. (Reporting By Karen Pierog and Lisa Lambert; Editing by Ken Wills)