The judge overseeing Detroit’s bankruptcy said the city’s casino tax revenue is protected by U.S. law and can’t be frozen by Syncora Guarantee Inc. in their dispute over a proposed $253 million swaps settlement.
U.S. Bankruptcy Judge Steven Rhodes in Detroit ruled today in the city’s favor as it seeks to buy its way out of interest-rate swaps contracts to save about $50 million a year. Cash from the casino tax is considered collateral for payments the city owes on the contracts. Syncora wants the cash held by a custodian rather than distributed to the city.
After Detroit filed the biggest-ever U.S. municipal bankruptcy last month, the city’s emergency manager, Kevyn Orr, asked Rhodes to approve the settlement with Merrill Lynch and UBS AG when it comes to court next month. Syncora, which sold insurance on the swaps, opposes the settlement, claiming that ending the contract too early could hurt its economic interests.
U.S. District Judge Gerald Rosen, Detroit’s lead bankruptcy mediator, on Aug. 23 ordered New York-based Syncora, the city and swaps holders to meet with an Oregon bankruptcy judge in Detroit tomorrow to try to settle their differences.
The Oregon judge, U.S. Bankruptcy Judge Elizabeth Perris, has been a court-appointed mediator for three California cities that also filed bankruptcy: Vallejo, Mammoth Lakes and Stockton. Stockton remains in bankruptcy.
Under the settlement, swap providers would be paid at least 75 percent of what they’re owed, depending on when the contract is canceled. City attorney Corinne Ball, a partner at Jones Day in New York, said in court on Aug. 21 that the discounted value of the swaps was about $190 million.