Detroit— A holdout creditor asked Detroit’s bankruptcy judge late Friday to delay a trial over the city’s plan to cut $7 billion in debt until late September.
The request from bond insurer Syncora Guarantee Inc. jeopardizes Detroit’s goal of emerging from bankruptcy court by October. The firm, which is fighting potentially losing more than $270 million in the city’s bankruptcy case, faulted Detroit for failing to turn over documents and missing a June deadline to submit records.
U.S. Bankruptcy Judge Steven Rhodes is set to hold a five-week trial over the city’s debt-cutting plan Aug. 14. The trial originally was supposed to start this month but the judge delayed it, citing Detroit’s delay in producing documents and “unreasonable” requests from Syncora, the city’s most aggressive creditor.
In a 10-page filing, Syncora reiterated it opposes Detroit’s plan to restructure debt and emerge from the biggest municipal bankruptcy case in U.S. history.
“To be clear, Syncora opposes the proposed plan and is fully prepared to litigate confirmation on the current schedule,” the bond insurer’s lawyer Ryan Blaine Bennett wrote.
But delaying the trial would give Syncora more time to “fully consider” the debt-cutting plan and finish reviewing thousands of pages of documents recently submitted by the city, Syncora’s lawyer wrote.
Syncora is one of the insurers of debt Detroit issued to prop up pension funds representing civil retirees and police and fire retirees in 2005.
In 2005, Detroit borrowed $1.44 billion from investors through a financial note called “certificates of participation.” The deal was designed to pour money into the two pension funds. The pension debt was made more complex by an interest rate swaps deal layered on top of $800 million of the debt. The city traded a variable interest rate for a fixed rate.
The swaps initially gave Detroit lower borrowing costs. But when interest rates plummeted in 2008-09, the annual payment ballooned from an estimated $5 million to $50 million.
The city claims the deal was illegal.
Syncora has said in court records it faces the prospect of “massive” losses because it was “a participant in every facet” of the pension debt.