Syncora Guarantee Inc., the bond insurer fighting Detroit’s debt-cutting plans, won the right to challenge a bankruptcy court judge’s decision that it couldn’t freeze the city’s casino tax revenue.
The bond insurer is challenging a ruling last year that it couldn’t trap the casino tax revenue because, according to the bankruptcy court judge, it was city property and shielded by Detroit’s Chapter 9 filing. The U.S. Court of Appeals in Cincinnati ruled yesterday that a district court judge must decide Syncora’s appeal by no later than July 14.
“Whether a substantial revenue stream is rightly considered property of the bankruptcy estate, is precisely the type of issue that should be reviewed before the bankruptcy court confirms the plan of adjustment,” the appellate court said. The city receives about $15 million a month from casinos through excise taxes, according to yesterday’s ruling.
Since filing its record $18 billion bankruptcy last July, Detroit has battled municipal unions, retired city workers, bondholders and insurers over cuts. Bond insurers Syncora, Ambac Assurance Corp. and National Public Finance Guarantee Corp. face hundreds of millions of dollars in claims should the city win approval of its plan to pay creditors less than they’re owed.
Kevyn Orr, the city’s emergency manager, said last year that before seeking court protection, the city fought a “running gun battle” with Syncora to protect its best source of cash from the bond insurer. To try to get an advantage related to pension bonds it had insured, Syncora was threatening the city’s casino tax revenue, Orr said.
A judge must decide whether that revenue should be part of the bankruptcy before the reorganization can be approved, the appeals court said yesterday.
“Without a final decision on that question, the city will not know what amount its coffers will contribute to the bankruptcy estate, the creditors cannot know the size of the pie they are being asked to share, and the bankruptcy court cannot be confident that it is considering a legally and financially viable plan.”
The bankruptcy case is In re City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).