A New York-based specialty finance group is ready to loan Detroit as much as $4 billion, double its previous offer, if the bankrupt city uses the masterpieces in its art museum as collateral, according to a new proposal that surfaced this week.
Art Capital Group, which offered to loan the city $2 billion earlier this year, doubled the offer based on a recent appraisal that determined the Detroit Institute of Arts' collection was worth more than $8 billion.
"We're prepared to provide a loan, secured by the art collection, that is a balanced, fair and equitable solution for the city so that it can emerge from bankruptcy with the money it needs to secure a better future," Montieth M. Illingworth, spokesman for Art Capital, said in a statement.
Notable works at the museum include Pieter Bruegel's The Wedding Dance, Vincent van Gogh's Self-Portrait with Straw Hat and Rembrandt's The Visitation.
But the city, which filed the biggest-ever municipal bankruptcy in July 2013, isn't entertaining the proposal.
"We think this is a thinly veiled attempt to discredit the grand bargain," said Bill Nowling, spokesman for Detroit Emergency Manager Kevyn Orr.
Detroit's plan to adjust $18 billion of debt includes the so-called grand bargain, which taps $366 million pledged by philanthropic foundations and $100 million from the art institute over 20 years, as well as a $195 million lump sum payment from the state of Michigan to ease pension cuts for city retirees and save the museum's collection from being sold to pay creditors.
Hold-out creditors have attacked the grand bargain, claiming the deal gives Detroit retirees a bigger recovery than other similarly situated creditors like themselves.
U.S. Bankruptcy Judge Steven Rhodes, who is overseeing Detroit's historic case, will start a key hearing on Tuesday to determine if the city's debt adjustment plan is fair and feasible.
Bond insurer Financial Guaranty Insurance Co., which has been advocating tapping into the art collection to satisfy creditor claims, called the Art Capital proposal "a game changer."
"It represents a real and viable solution that could enhance recoveries for all creditors by more than $2 billion and catalyze the revitalization of the city, while also keeping the DIA collection in Detroit," the insurer said in a statement.
Detroit has been working to secure a traditional $300 million loan. Nowling said that deal may be finalized in the next week or so.
Art Capital said it could tailor the loan amount and the terms to the city's needs. Interest rates could be based on Libor plus 5.5 to 8.5 percentage points, according to Illingworth.
"The key here is the city engaging with us as a lender to structure a loan which is flexible, affordable and not unreasonably burdensome," he said. "Keep in mind that for a city in bankruptcy these are reasonable rates."
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