Morning Agenda: Unusual Offer for Detroit's Art

As Detroit prepares to defend its plan next week to exit bankruptcy, city leaders have received an unusual offer to mortgage all the artwork in the Detroit Institute of Arts, Mary Williams Walsh writes in DealBook. A company called Art Capital, which makes loans backed by artwork, has told the city it is willing to lend it up to $3 billion, roughly 10 times the exit financing Detroit is now contemplating, using the museum's art as collateral. The city has responded to the proposal with silence.

Donors have already promised hundreds of millions of dollars to put the collection under new ownership ‒ safe from the bankruptcy creditors ‒ and to help the city's retirees, Ms. Walsh writes. Detroit had a big hole in its pension fund when it declared bankruptcy last year, which made the retirees unsecured creditors, subject to painful cuts. By rolling up the art and pensions in a single deal, known as the grand bargain, Detroit hopes to keep its treasured collection intact while also getting more money to the retirees.

The problem is the grand bargain may be illegal. Bankruptcy law calls for equally ranked creditors to be treated the same way. But in the view of some creditors and critics, the grand bargain would effectively sell the art to a bankruptcy-proof entity at a below-market price, then steer all proceeds to the retirees, leaving other unsecured creditors in the lurch. Art Capital's proposal makes the case, indirectly, that the court should reject the plan. Details of Art Capital's proposal came from a term sheet, marked 'proprietary and highly confidential,' that was provided to The New York Times by a person opposed to the grand bargain.

GLOBAL CONNECTIONS IN BURGER KING DEAL | To many, Burger King may be an American icon. But with its $11.4 billion deal to buy the doughnuts-and-coffee chain Tim Hortons, announced on Tuesday, it will soon become a Canadian company majority owned by the Brazilian investment firm 3G Capital ‒ with the assistance of the American billionaire Warren E. Buffett, Michael J. de la Merced and Ian Austen write in DealBook. The acquisition highlights the ever-higher ambitions of Burger King's majority owner, 3G Capital. In just six years, the firm has taken over Burger King and the ketchup giant H.J. Heinz and helped orchestrate the megamerger of the beer giants InBev and Anheuser-Busch.

The 3G combination of operating prowess and hyperefficient cost-cutting has won the investment firm praise from the business world, Mr. de la Merced and Mr. Austen write. And it has no bigger admirer than Mr. Buffett, who is a longtime friend of the 3G co-founder Jorge Paulo Lemann and was a partner in buying Heinz last year for $23 billion. 3G had weighed the possibility of a Tim Hortons deal for some time, but it and Burger King are said to have begun formal talks with Tim Hortons earlier this year. Mr. Buffett entered the picture early on, with Berkshire Hathaway agreeing to buy $3 billion worth of preferred stock to help finance the deal, on top of $9.5 billion in debt financing arranged by JPMorgan Chase and Wells Fargo.

Since news of the talks emerged this week, customers and lawmakers have worried that the deal would be a corporate inversion aimed at trimming Burger King's tax rate. But in this case, tax savings do not appear to be the primary motivation, Steven Davidoff Solomon writes in the Deal Professor column. For one, Canada will be the biggest market for the combined company, so the country may actually be the best place to run the business. 'From what we know so far, it is hard to see the tax issue driving this acquisition. In other words, Burger King could have made this choice even without the tax savings, which seem minimal,' Mr. Solomon writes.

KEEPING CORPORATE LAWYERS SILENT | Companies are invoking the attorney-client privilege to shelter potential wrongdoing, perhaps to the detriment of many people, including shareholders, Mr. Solomon writes in another Deal Professor column. In yet another example of such a move, Maritza I. Munich, a former Walmart lawyer who advocated for an aggressive response to the company's bribery scandal, has been silenced by Walmart, which has used the attorney-client privilege to keep her from speaking.

In Ms. Munich's case, she was the general counsel of Walmart's international division when Walmart discovered that its employees might have been involved in a sweeping bribery operation in Mexico. According to documents, she led the bribery investigation as it unfolded in 2004. But she was stymied in that investigation and in others. Walmart has since conducted a widespread investigation, but it is not finished and the full details are not known because Walmart has asserted that attorney-client privilege, Mr. Solomon writes.

But Ms. Munich may yet have her chance to talk, Mr. Solomon writes. A recent Delaware court decision may not only allow Ms. Munich to talk about what happened at Walmart, but may also give shareholders of all companies a way to sidestep the attorney-client privilege when wrongdoing takes place. Still, the principle remains strong, he writes. 'The result is that companies have a great incentive to shift anything hinting at legal trouble to their in-house counsel to ensure that it is protected from disclosure. The in-house legal department thus becomes the 'cover-up and damage control' arm of the company.'

ON THE AGENDA | The Securities and Exchange Commission holds an open meeting at 10 a.m. on whether to adopt rules revising the disclosure, reporting and offering process for asset-backed securities.

S.&P. REACHES MILESTONE | The Standard & Poor's 500-stock index reached a milestone on Tuesday, closing above 2,000 for the first time ever, if just barely, DealBook's Nathaniel Popper writes. The record came on a day when new data showed growing consumer confidence in the United States, but that was tempered by signs that the real estate market's recovery appeared to be slowing. Most of the force behind the recent rally has come from the European Central Bank, which has signaled that it might do more to help the Continent's faltering economy.

'As with each high point in the markets over the last five years, this one has come with doubts about whether it is truly supported by underlying strength in the economy,' Mr. Popper writes. But the detractors who have doubted that the market could go higher have so far been proved wrong again and again. On Tuesday, the S.&P. 500 closed up just 2.10 points, or 0.1 percent, at 2,000.02. The Dow Jones industrial average rose 29.83 points, or 0.2 percent, to 17,106.70, while the Nasdaq composite index climbed 13.29 points, or 0.3 percent, to 4,570.64.

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