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Detroit creditors want more time to vet city's bankruptcy plan

A mural that reads "Detroit Lives!" is displayed on the side of a building in Detroit, Michigan December 3, 2013. REUTERS/Joshua Lott
A mural that reads "Detroit Lives!" is displayed on the side of a building in Detroit, Michigan December 3, 2013. REUTERS/Joshua Lott

By Karen Pierog

(Reuters) - Detroit faces a long legal fight over its valuable art collection and other key matters in its historic bankruptcy case that make it imperative to push back the start of a trial on the city's debt adjustment plan, a bond insurer argued on Friday.

In a filing in U.S. Bankruptcy Court, Syncora Guarantee Inc warned that lawsuits will be filed over the Detroit Institute of Arts' collection, which the city is not selling at this point to help pay its $18 billion in debt.

Syncora, which guaranteed payments on some of Detroit's bonds, and other creditors have pushed for the sale of art works to raise more cash for the city to spread among its thousands of creditors, who face steep losses in the largest municipal bankruptcy in U.S. history.

In an effort to prevent a fire sale of art, a group of philanthropic foundations, the art museum and Michigan Governor Rick Snyder have pledged about $815 million to ease pension cuts for city retirees.

Prior to those pledges, auction house Christie's in December appraised the value of Detroit-owned works at the institute at $454 million to $867 million. But critics of Christie's work suggested that the appraisal of only a small slice of Detroit's collection undervalued the art collection as a potential asset in helping to resolve Detroit's bankruptcy.

"Given the city's odd decision to value just 5 percent of the entire collection and its repeated failure to provide ownership information, there will be litigation surrounding the art and it will be time consuming," Syncora said in its objection.

Syncora was among several creditors that requested a delay on Friday, the deadline Judge Steven Rhodes set for objections to his schedule that called for a trial to start on June 16.

The plan Detroit filed with the U.S. Bankruptcy Court a week ago would result in cuts to city worker pensions and even deeper cuts to holders of certain Detroit bonds that were lumped into the city's nearly $12 billion pile of unsecured debt.

Retirees and pension funds argued the proposed cuts were too deep, while bond insurers complained that bondholders were being treated unfairly.

Some of the creditors contended the schedule did not allow enough time to fully vet the plan, which they said was not complete.

Syncora also noted that Detroit has yet to make headway on the formation of a regional water and sewer authority that would have a material effect on creditor recoveries and that litigation is also likely over the disputed size of the city's liabilities for pensions and retiree healthcare.

The bond insurer proposed moving the trial date on Detroit's plan to September 8.

Another group of creditors, including the city's two pension funds, public safety unions and other bond insurers, suggested a trial date of July 14 on the plan. The city itself proposed moving the date to June 23.

In an unrelated action on Friday, Judge Rhodes granted Detroit's motion to disband a committee of unsecured creditors, citing the committee's unwillingness to participate in mediation and the millions of dollars in professional fees the committee would cost the city. The committee, created in December by the U.S. Trustee, includes bond insurer Financial Guaranty Insurance Co and the city's two pension systems, which are its biggest unsecured creditors.

At a February 19 hearing, Detroit's attorneys argued the committee was unnecessary because all of the city's major unsecured creditors have already participated in the case, including mediation, and have legal representation.

A separate committee formed at the city's request earlier in the bankruptcy case to represent retired city workers cost Detroit nearly $2 million in fees and $61,500 in expenses between July and September, according to a report released this month by a court-appointed fee examiner.

(Reporting by Karen Pierog in Chicago; Editing by Lisa Shumaker)

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