Detroit, bankruptcy creditor to present deal Thursday

Christine Ferretti and Robert Snell
The Detroit News

Detroit — Attorneys for the city say they hope to present on Thursday a settlement in U.S. Bankruptcy Court with Detroit's largest remaining holdout creditor.

Thomas Cullen, a Jones Day attorney representing Detroit in its historic bankruptcy case, noted the impending settlement with Financial Guaranty Insurance Co. as court resumed Tuesday following a weeklong break.

Cullen said the city has a "firm and active faith" that a deal with FGIC would be finalized in two days.

The comments came after FGIC attorney, Alfredo Perez, told U.S. Bankruptcy Judge Steven Rhodes that closed-door negotiations out of court in recent days have allowed the parties to "make a lot of progress."

The judge then granted FGIC's request to hold off on bringing in its witnesses until Thursday.

The status update over the city's talks with FGIC comes as objectors in Detroit's bankruptcy case are scheduled to call witnesses prior to the trial's closing arguments, which are anticipated next week.

FGIC has been working with Detroit to settle a $1.1 billion claim stemming from a disastrous pension deal backed by ex-Mayor Kwame Kilpatrick. Sources have said the agreement involves cash and real estate.

The News reported last week that the city was considering leasing most of Detroit's public parking facilities to bond insurers — including the Joe Louis Arena garage and one underneath the old Hudson's site along Woodward — to help settle the biggest municipal bankruptcy case in U.S. history.

All told, FGIC could end up leasing three parking garages, receive riverfront land and cash. The bond insurer also could sign a deal to develop city-owned land.

The private negotiations are aimed at speeding the end of Detroit's bankruptcy to allow the city to shed about $7 billion in debt. The talks are being overseen by Chief U.S. District Judge Gerald Rosen.

Rhodes inquired Tuesday if an agreement with FGIC would require "yet another round of projections."

Cullen told the judge it would not.

A settlement would let FGIC recover more money than under the city's debt-cutting plan but less than what rival bond insurer Syncora Guarantee Inc. received in a deal last month.

Syncora and FGIC were two of the biggest opponents in the bankruptcy trial. The firms insured $1.4 billion in troubled pension debt that helped Kilpatrick prop up the city's pension funds in 2005.

Without a deal, Detroit proposes paying FGIC as little as 6 cents on the dollar.

Under Syncora's deal, the bond insurer would get a nearly 14 percent recovery on claims totaling $400 million.

By comparison, Detroit's debt-cutting plan gives the city's pensioners about 46 cents on the dollar for their $3.1 billion claim.