Column: Syncora stinking up bankruptcy
Whether Detroit’s bankruptcy ends in a neatly wrapped package or drags into a long and expensive court fight depends on how the poker game plays out over the next 12 days between the city and its last holdout creditor.
All that stands between Detroit and a clean end to its Chapter 9 filing is Syncora Guarantee Inc., the bond insurer that backed $400 million in city debt, and is being asked to write off 90 percent or more of that obligation.
Agreements are fairly well in hand with all other creditors, including the city’s retirees. But after months of mediation, Syncora is still not signing on. A delay in the bankruptcy trial, which was supposed to start last Thursday, gives the court until Aug. 29 to get a deal in place that would make the proceeding unnecessary and allow the city to wrap up the case before Emergency Manager Kevyn Orr departs in October.
A few weeks ago, there was a good bit of confidence a settlement would be reached. Now, those around the negotiations aren’t nearly as hopeful, saying privately it’s just as likely as not the case will go to trial.
And if it does, it almost assuredly will go to an appeal as well, no matter how the court rules. That means no end to the massive legal bills Detroiters will pay as the case drags on in a process that could last five years.
At this point, Syncora still wants more than the city can give.
Syncora has tried and failed to attach Detroit’s $11 million in monthly casino royalties. Its push to force a yard sale at the Detroit Institute of Arts was thwarted by the “grand bargain” that raised more than $800 million to protect the collection and mitigate harm to pensioners.
But it still thinks it has a strong case that it was treated unfairly. In court filings, Syncora, whose claim is unsecured, contends pensioners were favored over other creditors in violation of the principle that all creditors in the same class should be treated equally.
Last week, it filed a motion accusing Gerald Rosen, the chief federal district judge in Detroit and lead mediator in the case, of being biased toward retirees, elevating the rhetoric to a very personal level.
Syncora has warned its investors that accepting the city’s current offer could put it out of business. If that’s true, it may feel it has nothing to lose in forcing a trial. But it would also have to pay lawyers, and that can get awfully expensive if the case reaches the appeals court.
The parties are still talking, although you have to believe the mediation sessions are a bit more testy since Syncora’s direct shot at Rosen. A settlement, if it comes, will be at the very last hour, when either Syncora accepts the city has no more to give or Detroit comes up with an unexpected sweetener.
Detroit’s bankruptcy has gone smoother than anyone could have hoped. But Syncora could still make this a very miserable exercise.
Follow Nolan Finley at detroitnews.com/finley, on Twitter at nolanfinleydn, on Facebook at nolanfinleydetnews and watch him at 7:30 p.m. Thursdays on “MiWeek” on Detroit Public TV, Channel 56.