Update: Syncora, Detroit Settle; Judge Pauses Bankruptcy Trial Again

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U.S. Bankruptcy Judge Steven Rhodes ordered a week-long break in Detroit’s bankruptcy trial on Sept. 16, giving the last major objector to the city’s restructuring plan time to rework its case.

The hearing will be adjourned from Friday and reconvene on Monday, Sept. 29. It was also placed on hiatus last week for three days while the city applied the finishing touches to a settlement with another holdout creditor, Syncora Guarantee Inc.

Syncora formally withdrew its objections to the plan in light of the settlement, leaving Financial Guaranty Insurance Co (FGIC), which has $1.1 billion on the line, to lead the fight against the plan and the questioning of witnesses. The insurer said it needed time to organize its case.

The hearing to determine if the plan is fair and feasible began on Sept. 2 and was expected to stretch through the middle of October.

Even with the recess, the judicial process of the largest municipal bankruptcy filing in U.S. history will keep progressing.

Rhodes will hold an evidentiary hearing on Monday on the city’s policy of shutting off water to delinquent bill payers, a program that had stoked protests across the city. After a month-long moratorium on the shutoffs ended, civil rights attorneys filed a class action seeking to halt Detroit’s attempt at reducing a $90 million backlog of unpaid bills and asked Rhodes to issue a temporary restraining order.

Meanwhile, FGIC and other, mostly smaller, objecting creditors must file any objections to the latest version of the plan within the week-long break. They also must complete and post expert reports, and conduct any needed discovery and depositions.

The latest version of Detroit’s plan to restructure its $18 billion in debt and other obligations, released on Tuesday, offers FGIC some of the same terms of the Syncora settlement, which would garner it a 13.9 percent recovery.

FGIC, though, is pushing to monetize or sell the collection of the Detroit Institute of Arts to reap a richer recovery. But if Rhodes approves the plan as it currently stands he could impose its terms on FGIC in what is known as a “cramdown.”

(Editing by W Simon, J Benkoe and Matthew Lewis)