In an attempt to weed out the factors obstructing the city from erasing its debt and rising from bankruptcy, Detroit on Tuesday has reached to a tentative agreement to pay a major creditor 26 cents on the dollar, besides offering it valuable leases.
According to a joint court filing, Detroit and the key bond insurer Syncora Guarantee “have reached an agreement in principle” to settle the firm’s USD 400 million claim, settling the largest-ever municipal bankruptcy case in the United States.
Experts say the move holds the potential to clear the biggest stumbling blocks in the city’s plan to cut its debts and emerge from bankruptcy protection by making out its finances and start over again.
Syncora would get 26 percent of what it’s owed, the company’s spokesman Steven Schlein said.
Under the deal, America’s largest city would extend Syncora’s lease on the Detroit-Windsor Tunnel by 20 years to 2040, while giving the company another 30-year lease on the Grand Circus Park parking garage.
After reaching the agreement, both the parties urged Judge Steven Rhodes for a postponement of the bankruptcy case trial until Friday in order to complete all the paper work related to the deal.
The filing said, “If this agreement is finalized within this time period as we expect, it will profoundly alter the course of the proceeding and the litigation plan of the remaining parties.”
Talking about the trial, Syncora attorney James Sprayregen said that the postponement of the case was requested “so that certain contingencies related to the deal, including obtaining full resolution with Bank of America, UBS and other stakeholders, can be worked out together by the both parties.”
“We are hopeful the deal will be finalized in the next 48 hours,” Sprayregen added.
While most creditors, constituted by over 30,000 retirees and city employees, have supported Detroit’s plan to reduce the unsecured debt from USD 12 billion to about USD 5 billion, Syncora came with a strong opposition claiming partiality against the financial creditors in the city’s blueprint.
Detroit has been paying its bills for decades by borrowing money in order to provide its residents with the most basic of services. The city that had been once fueled by the big auto industry shrank from 1.8 million people six decades ago to just less than 700,000 now.
The trial that commenced on September 2 is to help the judge to conclude his verdict on whether to approve, modify or reject the financial reorganization plan of America’s largest city.
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