By Lisa Lambert
DETROIT (Reuters) - A federal judge on Wednesday put the landmark trial on Detroit's plan to exit bankruptcy on hold until Monday, as the city neared a deal with one of its most formidable hold-out creditors.
Bond insurer Syncora Guarantee Inc and the city, after reaching an agreement in principle, requested late on Tuesday that the trial be delayed until Friday.
Syncora, which emerged as Detroit's fiercest opponent in the bankruptcy proceedings, forged a deal that its attorney, Ryan Bennett at Kirkland & Ellis, told U.S. Bankruptcy Judge Steven Rhodes is "a partnership for the future of Detroit."
Bennett, during the hearing in Detroit's federal court, added that his client needed time to work out certain matters involving interest-rate swap providers.
Syncora insured some of the city's $1.4 billion of pension debt and related interest-rate swaps. The company must quickly settle claims and counterclaims with swap providers UBS AG and Merrill Lynch Capital Services, a unit of Bank of America, for the tentative deal with Detroit to go through, a source close to the negotiations said on Tuesday.
Following Rhodes' decision to issue a trial delay, U.S. Judge Gerald Rosen, the chief mediator in the case, ordered the city, Syncora, the swap providers and others into a mediation session set for Thursday.
An attorney for bond insurer Financial Guaranty Insurance Co, the last major hold-out creditor, told Rhodes his client needed until Monday to review documents for the potential Syncora settlement.
FGIC's attorney, Alfredo R. Pérez at Weil, Gotshal & Manges, said he did not see the documentation for the Syncora settlement until Tuesday night.
"I've read it twice and I'm still having a hard time," he told Rhodes.
FGIC has a $1.1 billion exposure in Detroit's bankruptcy from guaranteeing payments on the city's pension debt. Others including city pension funds and retirees already have reached settlements.
In a statement, FGIC said it has not agreed to any potential settlement of so-called Class 9 claims involving Detroit's $1.4 billion of pension certificates of participation, but remains open to "good faith settlement discussions" with the city.
"The latest deal reinforces our view that the city has abundant sources of incremental value available for distribution to Class 9 claimants, however the issue at hand is their willingness to distribute this value fairly and equitably, not the presence of the value itself," the statement added.
FGIC has been pushing for the city to sell or monetize works at the Detroit Institute of Arts (DIA) to fatten payments to creditors. Detroit instead plans to spin the museum off into a nonprofit corporation as part of the grand bargain, which taps money from foundations, the DIA and the state of Michigan to ease pension cuts for retired city workers.
Rhodes began a confirmation hearing on Detroit's plan to adjust $18 billion of debt on Sept. 2 and had scheduled hearing dates through Oct. 17.
(Reporting by Lisa Lambert; Additional reporting and writing by Karen Pierog in Chicago; Editing by Meredith Mazzilli and Paul Simao)
