Joel R. Glucksman
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201-896-7095 jglucksman@sh-law.comFirm Insights
Detroit Close To A Deal With Final Creditor
Author: Joel R. Glucksman
Date: October 17, 2014
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The city of Detroit appears to be approaching a deal with its largest and last holdout creditor, Financial Guaranty Insurance Co.
City attorneys said that they hope to present a settlement in U.S. Bankruptcy Court on Oct. 16 after negotiations with FGIC, according to The Detroit News. Thomas Cullen, a Jones Day attorney who is representing Detroit, described a “firm and active faith” that the city and its holdout creditor will have finalized a deal by that time.
Alfredo Perez, an attorney for FGIC, told Bankruptcy Judge Steven Rhodes that “a lot of progress” has been made in recent closed-door negotiations out of court, the news source reported. FGIC holds a $1.1 billion claim that resulted from a pension deal backed by former Mayor Kwame Kilpatrick. The deal reached with this creditor could involve leases on three parking garages in the city, riverfront land, cash and a development deal on city-owned land.
Before this deal, FGIC faced recovering just 6 percent of its holdings compared to the 46 percent recovered by pensioners’ claims, according to The Detroit News. The creditor has maintained that this amounts to unfair treatment, but may be motivated to take any deal that offers better terms than this.
“Mediation with FGIC is progressing but the City is reserving any comment until there is a signed memo of understanding between parties,” Bill Nowling, a spokesman for Detroit Emergency Manager Kevyn Orr, said in a statement, according to The Wall Street Journal. “All I will say is that both sides are close to an agreement.”
The news source explained that this deal could help to end the city’s long trip through bankruptcy court, allowing it to discharge as much as $7 billion of the $18 billion that it owes. Most creditors, including the pensioners, have already settled with the city, and sources told the Journal that Detroit hopes to conclude the case by as early as Thanksgiving.
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