Wednesday, August 27, 2014

NYT: Company offering $3 billion loan to Detroit that uses DIA collection as collateral

Posted By on Wed, Aug 27, 2014 at 8:39 AM

Someone opposed to the so-called grand bargain, the proposal that shores up Detroit's pension funds with hundreds of millions of dollars in financial aid from the state and foundations, sent New York Times reporter Mary Williams Walsh an interesting item.

A company called Art Capital is willing to loan the City of Detroit as much as $3 billion, with the collection at the Detroit Institute of Arts collection ponied up as collateral, Williams Walsh writes. That would be about 10 times as much as the financing Detroit wants to tap as it exits bankruptcy, she notes. This, of course, would derail the meticulously orchestrated grand bargain.

There is, however, a catch — one Metro Times highlighted back in May: Is the grand bargain even legal?

As we previously reported, it's entirely up in the air.

The novel municipal bankruptcy code makes it almost impossible to determine, leaving most outcomes of Detroit's historic case open to conjecture. ...

The test, bankruptcy experts say, is that a Plan of Adjustment cannot unfairly discriminate against a class of creditors, and it must be in the best interests of all creditors.

Orr’s team clearly believes the law allows the $816 million to be funneled into one purpose, in Detroit’s case, to boost pension funds.

Bond insurers, who stand to lose hundreds of millions of dollars under the bankruptcy-exit plan, believe the law says otherwise.

And with so few cases guiding Rhodes in his decision making process, both sides have a legal argument to make, bankruptcy experts told Metro Times.

Detroit Emergency Manager Kevyn Orr's spokesman Bill Nowling told the Times that the city remains adamant about its commitment to the grand bargain, so the decision will be left for U.S. Bankruptcy Judge Steven Rhodes to decide whether it is, in fact, legal.

While no steady sources of revenue  would secure the Art Capital loan — such as Detroit's income tax revenue or casino gaming revenue — in the event of a default, the Times notes, the DIA's collection would be utilized. 

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