DETROIT (WWJ/AP) – A judge said he will decide in two to three weeks whether bond insurers’ claims that the millions of dollars they are owed by Detroit should be considered secured debt during the city’s bankruptcy.
National Public Finance Guarantee Corp., Ambac Assurance Corp. and Assured Guaranty Municipal Corp. made their arguments Wednesday before bankruptcy Judge Steven Rhodes.
The companies want Detroit to use special property taxes to resume making payments on the bonds. However, attorneys for Detroit said Wednesday that debt is unsecured and not funded by a revenue stream.
Rhodes told the bond insurers and the city that they should work toward a negotiated resolution, according to The Detroit News.
“The decision here is most likely all or nothing,” Rhodes said. “One side is going to win and the other side is going to lose.”
How the city’s debt is restructured will be part of state-appointed emergency manager Kevyn Orr’s plan of adjustment. The 120 page plan, which was filed Friday, will be the blueprint for the city’s future as Detroit goes through the largest municipal bankruptcy in U.S. history.
During Wednesday’s proceedings, an attorney for the city also told Rhodes that Detroit will release details in the coming days on a separate deal with two banks to solve some pension debt swaps.
In 2009, Detroit pledged casino taxes as collateral to avoid defaulting on pension debt payments. The city locked itself into high interest rates on bonds. The deal became too costly when interest rates plunged.
The proposed settlement would be the third with UBS and Bank of America Merrill Lynch.
Rhodes nixed the first settlement that would have paid the banks $230 million. A $165 million proposal also was shot down last month. Detroit had lined up a loan to pay for the settlements.
Orr has said the city’s has at least $18 billion in debt. About $6 billion is Detroit Water and Sewerage Department debt, which is secured by water bill payments, while an additional $12 billion is unsecured, meaning it’s not covered by a revenue stream.
Orr’s figure also includes about $2 billion in general obligation bond debt, $5.7 billion in unfunded retire health care obligations and $3.5 billion in unfunded pension liabilities — although pension officials have disputed that figure.
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