Bond Insurer Syncora Claims Mediator Favors Detroit's Retirees
One of Detroit's chief remaining adversaries in bankruptcy said on Tuesday that the city's exit strategy had been tainted by the biases of its chief mediator, whose job it was to impartially negotiate out-of-court settlements for as many of the city's outstanding debts as possible.
Syncora Guarantee, a bond insurer that could face millions of dollars in losses, said in a court filing on Tuesday that instead of setting his sympathies aside, the chief mediator, Gerald Rosen, had said several times that he thought he should get the best outcome possible for the city's retirees at the expense of other creditors.
The chief mediator is also the chief judge of the United States District Court for the Eastern District of Michigan, where Detroit's bankruptcy case is being handled by another judge, Steven W. Rhodes. A spokesman for the court said Judge Rosen was on the bench and unavailable to comment Tuesday afternoon.
As one example, Syncora cited remarks that Judge Rosen made at a news conference earlier this year, describing efforts to keep the treasures of the Detroit Institute of Arts from being sold to pay the city's creditors.
'None of this would be possible without all of us keeping a clear vision firmly in mind about who this is really about,' Judge Rosen said. 'It's about Detroit's retirees, who have given decades and decades of their lives, devoted to Detroit.'
With Detroit scheduled to seek approval of its plan for emerging from bankruptcy later this month, Syncora's objection offered a preview of some of the issues likely to be thrashed out in court. Judge Rhodes must ultimately decide whether the plan meets certain fundamental criteria - whether it is in the best interests of the creditors, for instance, whether it is feasible and whether it treats equally situated creditors roughly the same.
Syncora said Detroit's plan failed the tests because it singled out a favored group of creditors - the city's retired workers - and funneled 'every dime' of available resources to them 'at the exclusion of all other creditors of equal rank.'
'The court must reject the plan to preserve the integrity of judicial and mediation processes,' Syncora said in its objection.
In addition to Judge Rosen, it said another member of the team of mediators working on the bankruptcy was conflicted: Eugene Driker, whose wife was a longtime trustee of the Detroit Institute of Arts and now serves in an emeritus role.
The art museum is an integral party to an arrangement known as the grand bargain, in which donors have offered to provide money to transfer the artwork to an outside nonprofit entity, where Detroit's creditors could not lay claim to it. They have also agreed that the money should be used to cushion the retirees, whose pension fund was estimated to be about $3.5 billion short when the city declared bankruptcy last summer.
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