Howes: Hard-nosed creditor turns Detroit investor
The city's deal with its last major holdout creditor yokes another adversary — and its capital — to revitalization of the city, turning a tough bond insurer into the kind of investor Detroit needs.
The agreement, reached early Thursday, gives Financial Guaranty Insurance Co. options to acquire Joe Louis Arena, its adjacent parking deck and allows it to enter into a development agreement culminating in a riverfront hotel, retail and condos.
Not a bad turn for the largest city in American history to go bankrupt: a creditor into the city for more than $1 billion, its leaders desperate to recoup their losses, gets a prime, strings-attached tract overlooking an international border.
And Detroit gets a new property owner with an incentive to do a deal to boost the value of its holding — unlike, say, Matty Moroun, whose continued ownership of the Michigan Central Depot looms like a dark, pock-marked shadow above a downtown changing without it.
"If I'm the city, I want the property on the tax rolls and I want it used," Douglas Bernstein, managing partner of Plunkett Cooney's banking, bankruptcy and creditors rights group, says of Joe Louis. "It's a good thing — making use of the property and in a manner you want to see it developed."
That's not all. The city's deal with FGIC, arguably the last outstanding piece needed to speed court approval of the city's restructuring plan, is a fitting capstone to a massive municipal bankruptcy whose management by federal mediators, lawyers, the city and U.S. Bankruptcy Judge Steven Rhodes continues to defy predictions and deliver consensual deals.
The proposed transaction also answers critical questions about the redevelopment of downtown. Namely, what will happen to Joe Louis once the Red Wings decamp for their new arena inside the monster mixed-use entertainment district planned west of Woodward and north of I-75?
The FGIC deal is the first part of an answer. The envisioned development on the site where the Wings now play would include a hotel with at least 300 rooms on 30 stories, a riverfront landmark almost as tall as the four main towers of General Motors Co.'s Renaissance Center.
Second, could the creditors who helped a Kilpatrick-era City Hall ensnare the city in a $1.4 billion scheme to finance pensions — FGIC and Syncora Guarantee Inc. — be induced to settle with the city to avoid an harsher court-imposed settlement?
Yes, as separate agreements conveying downtown property and parking garages to FGIC and Syncora attest. Faced with the increasingly obvious prospect of a "cramdown," both creditors moved to secure some of the last pieces of city-owned assets with any meaningful (and attainable) value.
The proposed settlements effectively end any organized opposition to the "Grand Bargain," assuring the equivalent of $816 million will be used to bolster city pension and convey the Detroit Institute of Arts to a nonprofit charitable trust. Unions are in; pension funds are in; and now the two heavyweight creditors are in.
"We're down to not much the city can give up," Bill Nowling, spokesman for Emergency Manager Kevyn Orr says. "We don't have a lot of cash. We're not going to issue general obligation debt to do it."
But a deal conveying the prime Joe Louis site to a new owner with big incentive to create value out of stinging loss is, to borrow the cliche, a win-win for both sides. A major creditor looking to bolster its books wants more control over a city asset, and this deal offers that chance — in partnership with the city.
"It says a lot when two of the city's fiercest opponents in this case have both become significant stakeholders in Detroit's redevelopment," Rodrick Miller, CEO of the Detroit Economic Growth Corp., said in a statement. "It erases one more doubt about whether or not Detroit is a great place to invest or grow a business."
Here we are: fifteen months after lawyers for the city raced to file the largest municipal bankruptcy in American history, Detroit is close to culminating a case largely devoid of the ugly confrontation and public self-flagellation this city has long elevated to high art.
Streetlights are being replaced. Police are patrolling in new cruisers, EMS are responding in new units. The city's woeful IT systems have professional management and plans for upgrades.
Downtown parking will be upgraded. One-time lenders are set to become investors. Pensions for city retirees remain largely intact, the result of innovative deal-making and risk-taking by foundations, state legislators and DIA donors.
It's remarkable, yet another bargain to accompany the grand bargain — all of it evidence that Detroit can begin to repair decades of neglect and mismanagement if the right people wield the right tools for the right reasons.
Daniel Howes' column runs Tuesdays, Thursdays and Fridays and can be found at http:\\detroitnews.com\staff\27151.