Detroit urged the judge overseeing its $18 billion bankruptcy to prevent bond-insurer Syncora Guarantee Inc. from blocking the city’s access to casino tax revenue.
Without access to the $175 million the tax annually raises, the city will be handicapped as it tries to reorganize and exit bankruptcy, attorney Corinne Ball told U.S. Bankruptcy Judge Steven Rhodes at hearing in Detroit yesterday.
“This is probably the highest-quality tax stream the city has,” Ball said. “Being able to use the revenue stream is pivotal” to the city’s reorganization strategy.
Syncora wants cash from the tax to be held by a custodian and not distributed to the city. The money is considered collateral for payments the city owes on interest rate swap contracts.
Syncora is suing the banks that are part of those contracts, UBS AG and Merrill Lynch Capital Services Inc., in New York, trying to stop them from exiting the swaps. Syncora argues that it could be harmed should the city and the banks end the swaps.
Syncora attorney Stephen Hackney said the bond insurer has the right to try to block the casino money because it may have to pay out should the city fail to meet its swaps obligations.
Rhodes didn’t immediately rule on the city’s request that he find the U.S. Bankruptcy Code’s automatic stay of litigation applies to the casino money.
Detroit filed bankruptcy last month saying it didn’t have enough money to pay its debts after decades of economic decline decimated the city’s finances.
Before the two sides began arguing about the casino money, Detroit attorney Gregory Shumaker told Rhodes that the city would give creditors more access to a virtual data room that contains more than 70,000 pages of information about the city’s finances.
Creditors had complained to Rhodes earlier in the hearing that the city was trying to force them to sign non-disclosure agreements before giving access to the computerized documents. The agreements would have barred the creditors from making the documents public.
Rhodes appeared to support the creditors’ position when he questioned Shumaker about why the city needed to prevent creditors from making documents about Detroit’s finances public.
“In bankruptcy, why wouldn’t everything be discoverable?” Rhodes asked, referring to the official process under which opposing parties in a court case exchange information. “Doesn’t the city want every one of its citizens to see what its financial future will look like?”
The case is City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).