30 July 2014

Some Rope for Syncora: Yet More About Detroit Bankruptcy

An alternative title: One step back, two steps forward.

Several recent posts have discussed the building momentum for confirmation of Detroit's plan of adjustment. (See here and here--and posts linked therein.) Today's news reported by Reuters here that the hearing on confirmation has been delayed a week might suggest that the court is decelerating. But that would be misreading the situation.

Syncora--one of the two major holdouts--had asked for a 45-day delay. That wasn't going to happen but Syncora's need to evaluate the effect of the recent rash of settlements with other bondholders is a big deal. As I argued in Municipal Bankruptcy: When Doing Less Is Doing Best (download here), the Bankruptcy Code prohibits "unfair discrimination" in the event of cramdown. The complex deals Detroit has struck with other bondholders makes difficult an evaluation of whether Syncora is being treated unfairly.

Giving Syncora one week creates at least the appearance of due process but it's not clear if one week is really enough.

On the other hand--and this is the court's big stick--one week creates such pressure that Syncora may bite the bullet and settle, which makes the judge's confirmation decision much easier.

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