Detroit suing creditor, says Syncora improperly holding casino revenues needed during restructuring
9:05 PM, Jul 5, 2013
1:02 PM, Jul 10, 2013
DETROIT (WXYZ) - The City of Detroit is suing one of its creditors, contending they are withholding millions in casino revenues that the city desperately needs as it struggles to reorganize.
The city and Emergency Manager Kevyn Orr say Syncora Guarantee Inc. has "trapped" up to $11 million a month in casino revenue.
Orr's office contends that Syncora's move to hold the money has brought negotiations with UBS and Merrill Lynch over restructuring $340 million in the city's secured debt to "a virtual standstill."
The lawsuit was announced in a news release Friday afternoon.
The situation springs out of a 2009 decision by the city to use payments and taxes from Detroit's three casinos as collateral in order to avoid defaulting on debt it issued to shore up the underfunded city pensions. The way the deal works is that Syncora holds the money until Detroit makes the required payments, at which point the money is released to the city.
In addition to becoming the insurer of the payments in 2009, Syncora also issued $1.4 billion in what's called certificates of participation that were used to shore up the underfunding of the city's pension funds in 2005 and 2006. That $1.4 billion is not part of the 2009 deal that made Syncora the caretaker of the casino funds.
The city and Orr are now accusing Syncora of holding the casino money, despite the fact that the city has not defaulted on the obligations that that money is used to insure. The city contends it is in "full compliance" with the payment obligations it has, under the agreement that uses the casino money for collateral.
"Syncora is exerting power it does not have to get money to which it has no legal claim, and its actions are putting the City's entire restructuring efforts in peril," said Detroit Emergency Manager Kevyn Orr in the news release.
The city is contending that Syncora is holding enough money to pay the entire fire department for two months, or the entire police department for one.
"We are taking this action because we will leave no stone unturned to put Detroit back on its feet financially," said Orr. "The urgent needs of Detroit's 700,000 residents and the future of the City should not be held hostage by Syncora or any other party that insists on obstructing our efforts unnecessarily."
Wayne County Circuit Court Judge Annette Berry has granted a temporary restraining order in the case and enjoined US Bank from stopping any payments to the city. US Bank is the financial institution that holds the casino money for Syncora before it is released to Detroit.
We have reached out to Syncora for comment, but have not yet heard back.
A hearing has been set for 9:00 am on July 26 before Judge Jeanne Stempien.