Detroit has reached a tentative deal to pay a key creditor 26 cents on the dollar and offer it valuable leases, a move that that could clear the biggest hurdle in the city's plan to reduce its debts and emerge from bankruptcy protection.
A joint court filing on Tuesday evening said Detroit and the bond insurer Syncora Guarantee "have reached an agreement in principle" to settle the company's $400 million claim in the nation's largest-ever municipal bankruptcy case.
On Wednesday, Judge Steven Rhodes — presiding over hearings relating to the city’s bankruptcy plan — suspended the court sessions until Monday to allow time to hammer out details of the deal and work on similar settlements with other creditors.
For decades, Detroit paid its bills by borrowing money while struggling to provide the most basic of services for residents. The city, once fueled by the massive auto industry it gave birth to, shrank from 1.8 million people six decades ago to fewer than 700,000. In June, activists called on the United Nations to safeguard their access to drinking water in the face of raising rates as the city's water utility fell further into debt.
Syncora spokesman Steven Schlein said the company would get 26 percent of what it's owed. Detroit also would extend Syncora's lease on the Detroit-Windsor Tunnel by 20 years, to 2040, and give the company a 30-year lease on the Grand Circus Park parking garage, Syncora said.
The two sides said they need two days to complete the deal.
"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," the filing said.
Syncora attorney James Sprayregen said that the postponement request was "so that we can work through certain contingencies contained in the deal, including obtaining full resolution with Bank of America, UBS and other stakeholders."
"We are hopeful the deal will be finalized in the next 48 hours," Sprayregen said.
In response to a question from the judge last week, another Syncora lawyer had told the judge that he thought Detroit could afford to pay 75 cents on the dollar.
Syncora Guarantee and fellow bond insurer Financial Guaranty Insurance Co. have been leading a small group of creditors fighting the plan by state-appointed emergency manager Kevyn Orr.
Orr sent the city council a request on Tuesday to approve the deal, according to a copy that Syncora gave The Associated Press. Reflecting the legal limits on the council's power, Orr said it would have a week to present an alternate plan to raise an equivalent amount of money, and an emergency oversight board would make the final decision.
Most creditors, including about 30,000 retirees and city employees, have endorsed Detroit's plan to cut $12 billion in unsecured debt to about $5 billion.
Syncora has strongly opposed the terms, saying that Detroit's blueprint unfairly discriminated against financial creditors. Syncora and other creditors have also pushed for the city to look into the sale of assets, including city-owned pieces in the Detroit Institute of Arts (DIA).
The threat to artwork prompted the creation of the so-called Grand Bargain — commitments from the state, major corporations, foundations and others to donate more than $800 million over 20 years meant to soften cuts to city pensions while placing pieces in the DIA into a trust and out of the reach of debtor demands.
Pensioners this summer voted in favor of Orr's plan, which calls for general retirees to take a 4.5 percent pension cut and lose annual inflation adjustments. Retired police officers and firefighters would lose a portion of their annual cost-of-living raise.
Al Jazeera and the Associated Press