Detroit Bankruptcy: City Strikes Deal with Major Creditor Syncora

The city of Detroit has reached a final settlement with a major creditor, bond insurer Syncora Guarantee, over claims that could have delayed the economically-ravaged city's timely exit from bankruptcy protection.

The deal will see the city pay Syncora, which has a $400m (£246m, €309m) exposure in the case, some 14% of what is owed, according to reports.

The pact now leaves holdout creditor Financial Guaranty Insurance, which has $1.1bn on the line, as the last major creditor contesting Detroit's debt-cutting plan.

Meanwhile, the Detroit City Council has reportedly approved an up to $275m borrowing through Barclays Capital, to fund's the city's exit from the largest Chapter 9 case in American history.

Syncora Deal

Syncora will be paid through two note issues. The first, $25m, is part of the litigation trust. The second, $21.3m, will be paid with public parking revenue.

Syncora will also receive $5m, coming from an account backed by casino revenue.

The deal also gives Syncora an extension of its lease on part of the tunnel connecting Detroit to Canada, options to acquire six lots to develop, a $6.25m credit toward purchasing city assets and control of a major parking garage.

Blight Removal

The bankrupt city contains over 84,000 wrecked structures and vacant lots, and half of these have to be demolished, a task force convened by the US government said in May.

Clearing Detroit's blight could cost the city nearly $2bn, according to a report by the Detroit Blight Removal Task Force.

However, as of 27 May, Detroit had just "$87.6m immediately available toward the blight removal effort," the document added.

Detroit will need about "$850m just to address neighborhood blight in the next few years. Addressing the larger-scale commercial sites across the city could add an additional $500m to $1bn because of their much larger size and their potential for greater environmental issues," according to the 341-page report.

Detroit filed for bankruptcy in July 2013 and the former industrial powerhouse owes $18.5bn to thousands of creditors.

Detroit followed three California cities, Stockton, Mammoth Lakes and San Bernardino, all of which filed for bankruptcy in 2012.

In 2011, the city of Harrisburg in Pennsylvania tried to file forbankruptcy, but the move was deemed illegal.