Detroit Mediator Orders Syncora Into Swaps Accord Talks

Detroit’s lead bankruptcy mediator ordered the city and bond-insurer Syncora Guarantee Inc. into talks in their dispute over a proposed $253 million swaps settlement.

The city is seeking to buy its way out of an interest-rate swaps contract to save about $50 million a year, a proposal that Syncora asked a bankruptcy judge to reject when it comes before the court next month.

U.S. District Judge Gerald Rosen in Detroit ordered Syncora, the city and swaps holders including Merrill Lynch Capital Services Inc. to meet with a bankruptcy judge from Oregon to try to settle their differences.

After Detroit filed the biggest-ever U.S. municipal bankruptcy last month, the city’s emergency manager, Kevyn Orr, asked the judge overseeing the $18 billion case to approve the settlement with Merrill Lynch and UBS AG. Syncora, which sold insurance on the swaps, opposes the settlement, claiming that ending the contract too early could hurt its economic interests.

In an Aug. 23 order filed with the bankruptcy court, Rosen told participants to e-mail the mediator with “suggested ways that the mediation might resolve,” the dispute.

The city, New York-based Syncora and about 20 other groups were ordered to meet with, U.S. Bankruptcy Judge Elizabeth Perris of Oregon, on Aug. 29 in Detroit. Perris has been a court-appointed mediator for three California cities that also filed bankruptcy, Vallejo, Mammoth Lakes and Stockton. Stockton remains in bankruptcy.

Detroit Hearing

The judge overseeing the Detroit case, U.S. Bankruptcy Judge Steven Rhodes, is to consider approving the settlement next month. That hearing will see the first major court fight over Orr’s proposal to cut city debt while 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.

That means the swaps providers are owed about $253.3 million. Retirees and many of the city’s other unsecured debtholders, with about $11.5 billion of claims, were asked to take about $2 billion, or 17 percent, under Orr’s June 14 proposal.

The case is City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).

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