Detroit has reached a settlement with bond insurer Syncora Guarantee Inc., its fiercest opponent in its historic bankruptcy case, a lawyer for the city said on Monday.
David Heiman of law firm Jones Day told U.S. Bankruptcy Judge Steven Rhodes that Syncora and the city "have laid down their swords."
In a court filing on Monday, Syncora confirmed a "comprehensive settlement" with the city that was still subject to "definitive documentation and resolution of other terms."
Under the deal, Syncora will withdraw all of its objections to Detroit's plan to adjust $18 billion of debt and exit the biggest-ever municipal bankruptcy, Heiman said. That includes appeals pending in U.S. District Court and the Sixth Circuit Court of Appeals, he added.
Detroit and Syncora, which guaranteed payments on some of the city's pension debt, announced on Tuesday that they had reached a settlement in principle.
Heiman said objections from another bond insurer, Financial Guaranty Insurance Co., have not been resolved. FGIC, which is the last major holdout creditor, on Sunday asked the court to postpone the ongoing hearing on Detroit's plan until Sept. 22 to give it more time to retool its case in the wake of the Syncora settlement. The hearing to determine if the plan is fair and feasible began on Sept. 2.
On Monday, Rhodes said that FGIC should have anticipated the settlement and should be prepared to take over the cross-examination of witnesses. But he added that the city is expected to file another amended version of the plan soon, incorporating both the Syncora settlement and an agreement the city reached last week on its water and sewerage department, and FGIC may need time to file additional objections.
FGIC and the city's attorneys were expected to discuss a new schedule that could include a delay. The trial is currently scheduled to stretch into October.
The settlement with Syncora, which has a $400 million exposure in the case, comes in two parts: a financial resolution to the company's objection to the plan and a development agreement. Under the financial resolution, Syncora will see a 13.9 percent recovery on its pension debt claims, said Corinne Ball, a Jones Day attorney representing the city. That is slightly higher than the 10 percent recovery initially offered for claims related to $1.4 billion of pension debt.
Ball emphasized that any other creditor who settles with the city over the pension certificates of participation claims will receive the same terms. That would include FGIC, which also insured some of the debt.
Syncora, which until last week fought almost every aspect of Detroit's bankruptcy, apologized in its Monday court filing for accusing court-appointed mediators of improper conduct and conflicts of interest in the case.
Rhodes, who last month called the allegations scandalous and defamatory, said on Monday he would no longer consider sanctioning Syncora and its attorneys in light of the apology.
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