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Two major bond insurers, Syncora and Financial Guaranty Insurance, could lose billions under Detroit's proposed bankruptcy deal. / Mandi Wright, Detroit Free Press

DETROIT - Two major bond insurers that could lose billions in Detroit's bankruptcy blasted the city's plan to pay its retirees more than financial creditors.

After pensioners voted by a wide margin to accept benefit cuts, bond insurers Syncora and Financial Guaranty Insurance Co. (FGIC) pledged to continue their vigorous legal fight against the city.

Judge Steven Rhodes will now conduct a trial starting Aug. 14 to consider evidence and witness testimony before determining whether the plan is fair, feasible and legal and can be approved.

The bond insurers - which backed a $1.4 billion debt deal brokered in 2005 by then-Mayor Kwame Kilpatrick's administration to fund pensions - voted no on the city's offer to them, which ranged from 0 to 10 cents on the dollar.

"We understand why the retirees and unions voted in favor of the city's plan - if we were offered a similar deal we, too, would approve the plan," FGIC said in a statement. "Unfortunately, the city's current offer to FGIC ? is completely inferior, and until the city treats us fairly, we are compelled to fight for the fair and equitable treatment that is our right under the bankruptcy code."

Civilian retirees voted to accept 4.5% cuts to their monthly checks, the elimination of annual cost-of-living-adjustment increases and a clawback of excessive annuity payments. Police and fire pensioners accepted no cuts to their monthly checks and a reduction of COLA from 2.25% to 1%.

The deal was made possible in part because of a grand bargain in which foundations pledged $366 million and the Detroit Institute of Art pledged $100 million over 20 years, while the state of Michigan gave $195 million upfront.

The deal would the city-owned art museum to be spun off into an independent charitable trust, rather than trigger a potential sale of the museum's artwork, which the bond insurers have pushed for.

"We are not surprised at the vote given the grand bargain's illegal diversion of highly valuable assets to the very creditors who voted yes," said James Sprayregen, an attorney representing Syncora, in a statement.

Detroit emergency manager Kevyn Orr has argued that the Kilpatrick debt backed by Syncora and FGIC was illegal and should be wiped out.

A settlement is still possible before and even during the bankruptcy trial, but if the two sides don't come to a deal, Rhodes could force the insurers to accept cuts or direct them back to the bargaining table.



Copyright 2014 USATODAY.com

Read the original story: Bond insurers vow to fight Detroit bankruptcy deal

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