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 Syncora had argued it had been short-changed compared to other
creditors. If approved, the deal will see Syncora drop its objection
to the restructuring and the trial - which is studying the
feasibility of Detroit's plan to exit bankruptcy - could get a swift
approval from U.S. Bankruptcy Judge Steven Rhodes.
Syncora and the city reached an agreement in principle and requested
the delay late Tuesday. Rhodes approved the delay on Wednesday.
Under the agreement, Syncora will receive new notes totaling $23.5
million, according to a term sheet Emergency Manager Kevyn Orr
released. Detroit's city council must approve the terms and is set
to meet on Monday.
"(The settlement) should shorten the trial because if Syncora
withdraws its objections, many of the witnesses will fall off the
list," said Melissa Jacoby, law professor at the University of North
Carolina at Chapel Hill.
Rhodes began a confirmation hearing on Detroit's plan to adjust $18
billion of debt last week and had scheduled hearing dates through
Oct. 17.
 Syncora would receive 26 cents on the dollar, compared with the
recovery of 10 cents on the dollar the city originally offered, the
Detroit Free Press reported, citing two sources familiar with the
deal. Still, much of the settlement involves land and leasing deals,
which could muddle an exact valuation of the company's recovery.
Syncora will form a subsidiary to handle the property deals in the
settlement, which also extends the company's lease of part of the
Detroit-Windsor tunnel.
The subsidiary would lease a parking garage for 30 years, investing
$13.5 million over five years in upgrades and receiving all garage
net income plus a 40 percent return. Meanwhile, it has the option of
taking ownership of six empty downtown lots to develop.
The settlement also creates an asset pool that rests on the city
issuing $88.4 million financial recovery bonds backed by parking
revenue, carrying a 5 percent coupon and callable. Syncora would
receive 24.055 percent of the pool, or a $6.25 million credit toward
purchasing property and annual cash payments of $2.4 million from
parking assets.
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However, the deal requires that Syncora settle claims and
counterclaims with interest-rate swap providers UBS AG and Merrill
Lynch Capital Services, a unit of Bank of America <BAC.N> a source
close to the negotiations said.
Syncora would receive $5 million to resolve liability involving the
swaps under the deal. U.S. Judge Gerald Rosen, the chief mediator in
the case, has set a mediation session with the city, Syncora and the
swap providers for Thursday.
The deal leaves bond insurer Financial Guaranty Insurance Co, as the
last major hold-out creditor. An attorney for FGIC told Rhodes his
client needed until Monday to review documents for the potential
Syncora settlement.
FGIC has a $1.1 billion exposure in Detroit's bankruptcy from
guaranteeing payments on the city's pension debt.
In a statement, FGIC said it has not agreed to any potential
settlement of so-called Class 9 claims involving Detroit's $1.4
billion of pension certificates of participation, but remains open
to "good faith settlement discussions."
FGIC has been pushing for the city to sell or monetize works at the
Detroit Institute of Arts (DIA) to fatten payments to creditors.
Detroit instead plans to spin the museum off into a nonprofit
corporation.
(Additional reporting and writing by Karen Pierog in Chicago and
Megan Davies in New York)
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