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Judge suspends Detroit bankruptcy trial until next week after city reaches deal with creditor

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DETROIT — One of Detroit's fiercest opponents in bankruptcy once compared the city's fix-it plan to an automobile "lemon" fit for the "scrapyard."

Now that same creditor, bond insurer Syncora, is making peace with Detroit in the largest bankruptcy in U.S. history under a deal that could shorten a historic trial and move the city closer to solvency.

It's "better to be loving rather than fighting," Syncora attorney Stephen Hackney said Wednesday on the sidewalk outside federal court.

The trial is suspended until Monday to give Detroit and Syncora time to iron out details and pull in other parties affected by their settlement Tuesday night. The break also is an opportunity for another big creditor, bond insurer Financial Guaranty Insurance, which has a $1 billion claim, to pursue a deal.

"Anything's possible," Thomas Cullen, an attorney for Detroit, told The Associated Press.

The latest settlement won't end the trial. Judge Steven Rhodes still must hear from many witnesses, including emergency manager Kevyn Orr, who took Detroit into bankruptcy 14 months ago, and Marti Kopacz, an expert hired by the judge to give an opinion on the city's plan.

"There is a lot of work to be done,'" said Melissa Jacoby, who teaches bankruptcy law at University of North Carolina law school and regularly listens to courtroom recordings of the case.

The judge has set aside weeks to hear evidence that will help him decide whether Detroit's plan is fair to creditors and feasible in the long run. Trial began Sept. 2.

PHOTO: FILE - This July 12, 2012 file photo show the lanes entering the United States at the Detroit Windsor Tunnel. Detroit has reached a tentative deal to pay a key creditor 26 cents on the dollar and offer it valuable leases, a move that that could clear the biggest hurdle in the city's plan to reduce its debts and emerge from bankruptcy protection. A joint court filing Tuesday evening, Sept. 9, 2014 said Detroit and the bond insurer Syncora Guarantee "have reached an agreement in principle" to settle the company's $400 million claim in the nation's largest-ever municipal bankruptcy case.  (AP Photo/Paul Sancya)
FILE - This July 12, 2012 file photo show the lanes entering the United States at the Detroit Windsor Tunnel. Detroit has reached a tentative deal to pay a key creditor 26 cents on the dollar and offer it valuable leases, a move that that could clear the biggest hurdle in the city's plan to reduce its debts and emerge from bankruptcy protection. A joint court filing Tuesday evening, Sept. 9, 2014 said Detroit and the bond insurer Syncora Guarantee "have reached an agreement in principle" to settle the company's $400 million claim in the nation's largest-ever municipal bankruptcy case. (AP Photo/Paul Sancya)

"There are two components to feasibility," Jacoby said. "One is whether the city will be able to service the debt that it has restructured. Number two: Whether it will provide an adequate level of services to its citizens."

Detroit is proposing to get rid of $7 billion in debt and plow $1.7 billion into city services over the next decade. Thousands of retirees have backed a plan that would cut their pension by 4.5 percent and eliminate annual cost-of-living raises. The pension losses could be restored in years ahead if investment returns improve.

Syncora, which has a claim for $400 million, now is likely to recover 26 percent, said Steven Schlein, a spokesman for a law firm representing the company.

Detroit would extend Syncora's lease on a tunnel between the U.S. and Canada and grant it a long-term lease on a downtown parking garage, among other concessions.

Before the deal, Syncora had aggressively challenged its treatment by Detroit, saying it deserved more than pennies on the dollar. It even went after the mediators who had been working behind the scenes for months to protect art at the Detroit Institute of Arts and soften pension cuts.

Detroit's plan is "hopelessly defective," the bond insurer's legal team said in May. "If it were an automobile, it would be pronounced a lemon and promptly sent to the scrapyard."

The judge recently said Syncora's lawyers could face sanctions after a separate "scandalous and defamatory" filing against Chief U.S. District Judge Gerald Rosen and attorney Eugene Driker, mediators who helped arrange an $816 million pension bailout that also prevents the sale of art.


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