The city of Detroit and bond insurer Syncora Guarantee Inc. reached an agreement to end their battle over the city's $7 billion debt-reduction program, a move that may speed the biggest U.S. municipal reorganization to a quick conclusion.
U.S. Bankruptcy Judge Steven Rhodes gave Detroit and Syncora until Monday to work out final details of the accord, which would boost the bond insurer's recovery beyond the 10 cents on the dollar the city had offered. Until then, the trial on the fairness of the entire debt-cutting plan is on hold.
Under the settlement, the city would give New York-based Syncora new debt, renew a lease on a tunnel to Canada that the bond insurer controls, turn over a parking structure and give an affiliate of the company land for development. The agreement increases the pressure on bond insurer Financial Guaranty Insurance Co., the last major creditor still battling the city, said lawyers who are following the case but not involved.
Detroit, a city of about 700,000, filed a record $18 billion municipal bankruptcy last year, saying decades of decline left it unable to provide basic services and still meet financial obligations. Since then, Detroit Emergency Manager Kevyn Orr has cut deals with city unions, retired workers and some bondholders to pay them less than they are owed.
Detroit's bankruptcy plan hinges on a bargain with philanthropic foundations and the state government. Under the deal, wealthy donors and Michigan lawmakers will shore up the city's public pension system with more than $800 million.
Tuesday morning, Mayor Mike Duggan said Detroit had resolved a dispute with suburban counties over water distribution. For a few hours that left Syncora and FGIC as the only major opponents to the city's bankruptcy-exit plan.
Holding out when you are the last creditor left is "incredibly difficult," said Dale Ginter, an attorney who specializes in municipal bankruptcy.