Detroit’s fierce foe’ in bankruptcy action is a Bermuda insurer
A bankruptcy judge this week delves into key issues in the worst municipal bankruptcy in US history.
And in the middle is a Bermuda insurer whose holding company lists a Bermuda cabinet minister as a director.
The case is scheduled to go to trial in August and the Detroit Free Press claims that for the Bermuda insurer, a quarter of a billion dollars and its very existence may be at stake.
The news organisation reported: “An obscure but combative insurance company deeply entangled in Detroit’s financial problems has become one of the city’s fiercest foes in Bankruptcy Court, presenting a stiff legal obstacle to the city’s restructuring plans.”
As the latest legal twist unfolds, Detroit is trying to resolve more than $18 billion of long-term debt by persuading major banks to let the city out of unfavourable loan terms negotiated by a disgraced ex-mayor.
Former mayor Kwame Kilpatrick was convicted of two dozen counts of corruption, racketeering and extortion last October and sent to federal prison on a 28 year sentence.
Meanwhile, Bermuda- based bond insurer Syncora Guarantee Inc could lose hundreds of millions of dollars if Detroit is successful in wiping out the pension debt deal that is blamed for plunging the city into bankruptcy.
The insurer’s holding company, Syncora Holdings Ltd, lists Dr E Grant Gibbons (Minister for Education and Economic Development) as a director.
Court filings say the insurer guaranteed payments on a $1.4 billion debt deal engineered in 2005. The Detroit Free Press is reporting that the Detroit’s bankruptcy attorneys want a judge to block Syncora — described as an aggressive creditor — from gaining access to the personal financial information of 20,000 retired city workers.
City attorneys said the “billion-dollar insurance” company’s request “crosses the line” in its effort to discredit a plan to limit pension cuts at the expense of other unsecured creditors.
City Attorney Deborah Kovsky-Apap argued in a court filing, “Although it is still early, Syncora’s outsized approach to discovery has shown it will stop at nothing to sabotage the “Grand Bargain” and derail the city’s Plan of Adjustment.”
US Bankruptcy Judge Steven Rhodes set a hearing on the issue for Thursday.
Michigan Attorney General Bill Schuette, who has endorsed the “grand bargain” for Detroit pensioners, said Thursday he will oppose Syncora’s attempt to gain access to retiree financial information.
“Detroit’s retired cops and firefighters worked all their lives to protect us and now their privacy needs to be protected,” Schuette said in a statement.
He approved a $661 million plan to bolster pensions and protect the Detroit Institute of Arts (DIA) collection from creditors. His approval is a condition of the “grand bargain,” which is a key element of the city’s plan to restructure the $18-billion debt and emerge from bankruptcy court.
The “grand bargain” combines $195 million in state tax dollars with $466 million in private funds to prevent pensioners from facing double-digit percentage reductions in their monthly lifetime benefits. Schuette wants to block Syncora from questioning him about a legal opinion that the DIA
collection cannot be sold because it is held in a charitable trust. Judge Rhodes will also rule on Schuette’s request to quash a subpoena from Syncora.
Syncora lawyers want to question Schuette under oath about the opinion as part of its fight to sell pieces of the DIA collection for creditors’ benefit. In a recent court filing, Schuette wrote that the subpoena would subject him to an undue burden and possibly reveal privileged material.
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