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Earlier today, a federal judge ordered ongoing mediation in Detroit’s historic bankruptcy over a potential settlement between the city and one of its fiercest creditors, while adding holdout creditor Financial Guaranty Insurance Co., to the list of parties with required attendance. The chief mediator in the bankruptcy case, US District Judge Gerald Rosen, ordered that mediation, which began in Thursday, will also be taking place on Friday and will continue to do so day-to-day for as long as necessary.
Detroit and Syncora Guarantee Inc, the bond insurer that had been the fiercest holdout creditor in the case, notified the US Bankruptcy Court on Tuesday that they had reached a settlement in principle. Sealing this deal would leave another bond insurer, FGIC, as the only major holdout creditor left in the biggest-ever municipal bankruptcy that Detroit filed back in July of 2013. FGIC, which currently has a $1.1 billion exposure in the case from guaranteeing payments on the city’s pension debt, issued a statement yesterday that said it remains open to “good faith settlement discussions”. Both Syncora and FGIC faced recoveries of 10 cents on the dollar or less in the bankruptcy as other creditors, including the city’s pension funds, reached deals.
If they want to settle with Detroit, Syncora must also settle claims and counter-claims with UBS AG and Bank of America Corp Unit Merrill Lynch Capital Services over interest-rate swaps related to the pension debt that it also insured. The investment banks were included in both the previous and the current mediation orders from Rosen. Yesterday, US Bankruptcy Judge Steven Rhodes put Detroit’s case on hold until Monday in the wake of this potential deal.