The City of Detroit’s bankruptcy lawyers are offering deals to the leading opponent of its bankruptcy filing. The deal involves riverfront property and an indefinite lease on parking garages to the bond insurer that continues to oppose Detroit’s bankruptcy filing.
Under Chapter 7 and Chapter 13 bankruptcy, all creditors of the same class have to be treated in a similar manner under the terms of the bankruptcy. Similarly, in Chapter 9 bankruptcy, the bankruptcy attorneys much show the bankruptcy court any deals worked out, benefit all parties of the same class similarly.
The last two remaining hold outs on the Detroit bankruptcy were bond insurers. One of which already consented to a similar compensation package. Bankruptcy lawyers for all parties are relying on this to push the case through court.
The city is 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, sources told The Detroit News on Wednesday.
All told, Financial Guaranty Insurance Co., the last major holdout creditor, could end up leasing three parking garages, receive riverfront land and cash to settle a $1.1 billion claim, sources familiar with negotiations said.
“It’s a fluid situation that changes by the day,” Detroit’s Chief Operating Officer Gary Brown told The News on Wednesday. “I wouldn’t be surprised with anything that came out of the bankruptcy with regard to FGIC. Anything is on the table.”
The bond insurer also could sign a deal to develop city-owned land, a source familiar with negotiations said. The final terms of a deal — including which garages might be leased by FGIC — could change from proposals under discussion.
A potential deal is still at least days away, the source added.
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.
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 former Mayor Kwame 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.
An FGIC settlement involving real estate must be approved by Mayor Mike Duggan and the City Council. That’s because late last month, the City Council reclaimed control over municipal departments, contracts and other day-to-day matters after 18 months under emergency management.
If the City Council approves any deals, the settlement won’t be final until U.S. Bankruptcy Judge Steven Rhodes approves it.
The city owns six parking garages. At 2,100 spaces, the Joe Louis Arena garage is the largest followed by the 900-space Premier Underground Garage beneath the Hudson’s site.
FGIC could lease both garages for an undetermined length of time, a source told The News.
The garage underneath the Hudson’s site is considered especially valuable.
That’s because the site is along the path of the future M-1 Rail streetcar project and because Dan Gilbert, founder of Quicken Loans Inc., has development rights to the empty Hudson’s site, where he plans to build a major development.
“I don’t believe Premier will be (among) our assets much longer,” Brown said Wednesday.
FGIC also is interested in a 300-space garage on Riopelle in Eastern Market. The city earlier agreed to let Syncora lease an 800-space garage underneath Grand Circus Park for 30 years.
The Detroit News: http://www.detroitnews.com/story/news/local/wayne-county/2014/10/08/detroit-official-anything-table-fgic-deal/16923559/
