CHICAGO - Two weeks before the confirmation trial in Detroit's bankruptcy case, bond insurer Syncora Guarantee Inc. is already gearing up for the appeal.
The trial on the city's confirmation plan is set to begin Aug. 21, though U.S. Bankruptcy Judge Steven Rhodes, who is overseeing the case, suggested Wednesday it may be pushed back.
At the trial, Rhodes will consider whether the city's plans of debt adjustment and revitalization are feasible and fair to creditors. Syncora is one of only a small group of creditors, including insurer Financial Guaranty Insurance Co., expected to challenge the plan.
Syncora, the city's fiercest opponent since even before Detroit filed for Chapter 9 last July, will challenge the confirmation plan on several fronts. But attorneys are already looking ahead to the appeals process, said Syncora's attorney James Sprayregen, with Kirkland & Ellis LLP.
"Absolutely" we're preparing for the appeals process, Sprayregen said in an interview with The Bond Buyer Thursday.
"We're hopeful that it's them appealing, and not us, but based on a lot of comments made by a lot of players, we have to plan for the possibility that the plan would be confirmed," he said.
"It's not lost on us that the city is trying to create a sort of fait accompli and momentum that this plan needs to be confirmed because there are so many settlements," Sprayregen said. "But they still need to comply with the law."
Syncora already has five appeals pending before various courts challenging Rhodes' decisions over the course of the case.
The insurer will challenge the plan's feasibility and its fairness toward creditors as well as whether it meets the requirements that it was crafted in good faith and in the best interest of all parties.
Sprayregen said it will also argue that the mediation process, which drove most of the city's settlements with its major creditors, was flawed. Actions and statements by the head mediator, US Chief District Judge Gerald Rosen, prove that political motives soured the settlement process, Sprayregen said.
"The chief mediator, with all due respect, has publicly announced his bias in favor of the pensioners over my similarly situated clients," the attorney said. "We believe the mediation privilege itself was unfairly used as a cloak, and was overly favorable [to pensioners] and illegal under the bankruptcy code."
Key issues that need to be resolved ahead of the trial are details of the city's exit financing, details on the transfer of the city-owned art collection into an independent organization, and a possible settlement or privatization of the city's massive water and sewer department, Sprayregen said. That settlement could be announced any day, city attorneys announced at Wednesday's hearing.
Despite the months of court fighting and publicity battles, Sprayregen said a settlement remains the hoped-for outcome.
"We're optimists, and you never know when peace will break out," he said.
In related news, Detroit's Jones Day attorney, Heather Lennox, told Rhodes on Wednesday that the city is nearing a deal on the exit financing, estimated at $300 million.
The city received "quite a few" responses to a July request for proposals from banks interested in providing the financing, Lennox said.
Officials narrowed the responses down to a smaller group, held interviews with lenders early this week, and hopes to choose a lead lender by next week. That gives the city time to seek bankruptcy approval of the deal ahead of the Aug. 21 trial date, said Lennox.
