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GM Settles With 19 Families In Ignition Deaths Case, More Expected

By Nathan Bomey, Detroit Free Press

DETROIT — The number of deaths from accidents caused by General Motors’ defective ignition switch is at least 19, the chief of GM’s victim settlement fund has determined.

Ken Feinberg has awarded settlements to 19 families whose loved ones were killed because of GM’s ignition-switch problem. That’s up from the 13 GM and federal safety regulators have identified — a figure that was expected to rise after more potential victims filed claims.

Families of people who died will get at least $1 million.

Feinberg, who began accepting applications Aug. 1, will take requests through Dec. 31. As of Friday, 125 people had filed applications seeking compensation for fatal accidents allegedly caused by the defective ignition switches. Feinberg said those applications were either still under review or had insufficient documentation.

GM had acknowledged 13 deaths connected to the defect, which can cause ignition switches to turn off when jostled, cutting off power to engines, air bags, and other features.

The faulty switches were installed in Chevrolet Cobalts, Saturn Ions, Pontiac G5s, Chevrolet HHRs, Pontiac Solstices, and Saturn Skys, mostly from the 2003-07 model years. GM has recalled up to 2.6 million of those models.

Feinberg also said he received 58 applications for compensation tied to accidents that resulted in debilitating injuries and 262 applications in cases the involved less serious injuries. He said that so far he had certified four serious-injury accidents and eight less-serious injuries for compensation.

GM’s decision not to recall the cars until early this year — despite evidence that some employees knew of the problem more than a decade earlier — triggered numerous lawsuits and investigations, including a criminal probe by the U.S. Justice Department.

The compensation fund is unlimited, but GM has estimated that it will cost between $400 million and $600 million to settle all eligible claims. That doesn’t include jury awards to victims who choose to sue GM instead of accepting settlements. It doesn’t include any potential government fines.

Feinberg has spelled out criteria for eligibility at GMIgnitionCompensation.com. If he determines the defect was the “substantial cause” of the accident, he will use actuarial tables and average medical cost data to calculate the size of a payout.

AFP Photo/Bill Pugliano

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Creditor Syncora Reaches Detroit Bankruptcy Deal, Issues Apology

By Nathan Bomey, Detroit Free Press

DETROIT — Detroit’s stiffest bankruptcy opponent — a bond insurer called Syncora — reached a comprehensive settlement with the city of Detroit and issued a formal apology for accusing bankruptcy mediators of “naked favoritism.”

The remarkable development places Detroit within a stone’s throw of achieving an amicable resolution to its Chapter 9 bankruptcy — a seemingly impossible task just months ago, when pensioners, financial giants, and other creditors were jockeying to grab every last penny.

To be sure, a powerful bond insurer called Financial Guaranty Insurance Co. (FGIC), which was previously allied with Syncora, lingers as the city’s biggest remaining opponent. Several hedge funds and more than 600 individual people are still objecting to the city’s bankruptcy.

But Syncora’s decision to withdraw its objections to the city’s restructuring plan clears a wider path for Detroit to ask Judge Steven Rhodes to approve its sweeping plan to slash more than $7 billion in liabilities and reinvest $1.4 billion over 10 years in services.

Judge Rhodes was set to continue the city’s historic bankruptcy trial at 8:30 a.m. this morning, but FGIC has asked for the trial to be delayed a week to give it more time to prepare after Syncora’s withdrawal.

Rhodes has emphasized that he won’t allow Detroit to exit bankruptcy unless he’s convinced the city’s plan is viable.

In a court filing, Syncora said it would offer details of its “comprehensive settlement” during this morning’s hearing.

Syncora and the city had agreed to a tentative settlement last Tuesday in which the insurer would get a 20-year extension on its deal to operate the Detroit-Windsor Tunnel, a 30-year lease on a city parking garage and millions in bonds and options to purchase city property.

Altogether, the deal is difficult to value, but people familiar with the accord have estimated Syncora will ultimately collect 20 percent to 25 percent of the approximately $200 million it’s owed.

The insurer has aggressively battled Detroit emergency manager Kevyn Orr’s plan of adjustment, repeatedly seeking delays and deriding the blueprint as unfairly treating financial creditors.

FGIC and Syncora have repeatedly criticized the city’s grand bargain to protect the Detroit Institute of Arts and reduce pension cuts by accepting the equivalent of $816 million over 20 years from nonprofit foundations, the state of Michigan and DIA donors.

In a particularly aggressive move, Syncora accused bankruptcy mediators Gerald Rosen and Eugene Driker of designing the grand bargain to benefit pensioners over financial creditors. They had accused Driker of a conflict of interest because his wife is a former member of the DIA board and listed Rosen’s public statements as examples of his biases.

Following those blistering statements, Judge Rhodes ordered the insurer’s attorneys to prove why they should not be sanctioned and said they should apologize, though he wouldn’t order it.

But today, Syncora issued a formal apology — and went a step further. It called Rosen’s efforts “herculean,” saying he has done a “great service to this community.”

Rosen had ordered Syncora into confidential mediation talks over the last several days.

“We observed first-hand his remarkable skill as a mediator; his tenacity and perseverance under incredibly trying circumstances; and his great personal sacrifices, which included many long hours and making himself available at any time and on short notice,” Syncora said. “This was a herculean effort, and without Judge Rosen’s steady hand and calm under pressure, the settlement would not have been achieved.”

It added: “The role of Chief Mediator is, in many ways, a thankless task. Here, in particular, the demands of this position have required great personal sacrifice not only by Judge Rosen, but also his family, who undoubtedly have shared in the stress and strain associated with Judge Rosen’s labors.”

The company’s Kirkland & Ellis attorneys said they erred by suggesting that Driker had not disclosed his wife’s DIA ties — when in fact he had.

“While we have already privately conveyed our apologies to Judge Rosen and the Drikers, the public nature of the mistaken claim demands both a formal withdrawal of that claim and, just as importantly, a public apology,” Syncora said. “We are deeply sorry for the mistake we made and for any unfounded aspersions it may have cast on Chief Judge Rosen and the Drikers.”

When the city and Syncora reached their tentative deal last week, people familiar with the accord said the insurer would not sign off without concessions from Bank of America and UBS.

The global banks — which agreed to their own $85 million settlement with Detroit on a soured financial bet called swaps — want Syncora and FGIC to cover their losses on the interest-rate transaction brokered by Mayor Kwame Kilpatrick’s administration in 2005.

Syncora, which has been in a precarious financial position for the duration of the bankruptcy, wanted the banks to release it from its obligation to cover those losses.

A person familiar with Syncora’s settlement said the swaps imbroglio would not derail its deal with the city.

Photo: ifmuth via Flickr

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Judge Forces Detroit Bankruptcy Foe To Name Its price: 75 Percent Of What’s Owed

By Nathan Bomey, Matt Helms and Tresa Baldas, Detroit Free Press

DETROIT — Detroit’s most vociferous bankruptcy opponent said Wednesday the city cannot legally justify treating pensioners better than financial creditors and said it wants to be paid 75 percent of what it’s owed.

In a dynamic exchange, Bankruptcy Judge Steven Rhodes demanded that Marc Kieselstein, an attorney for bond insurer Syncora, reveal the payout the financial creditor is seeking.

“Something that’s within shouting distance” of Detroit pensioners, Kieselstein responded.

“I want a percentage and I want it now,” Rhodes retorted.

After complaining that he would have to violate the judge’s mediation order protecting the confidentiality of closed-door talks, Kieselstein caved and said Syncora wants 75 cents on the dollar. Attorneys for Syncora have said the city owes the insurer about $400 million.

If that’s what the insurer truly wants, the two sides are far apart. The city’s official plan is to play zero to ten cents on the dollar, depending on whether Syncora-insured debt holds up as legal in court.

In a full-blown assault on Detroit’s bankruptcy plan, Kieselstein got biblical Wednesday, claiming the city wants the court to blindly accept certain arguments “by faith alone, no explanation is necessary.”

Kieselstein’s remarks came on day two of Detroit’s history bankruptcy trial, which will determine the fate of the city’s sweeping restructuring plan to slash more than $7 billion in liabilities and invest $1.4 billion over ten years in services.

Detroit emergency manager Kevyn Orr and investment banker Ken Buckfire relied on faulty logic and improper legal standards to design a plan of adjustment that favors pensioners, Kieselstein argued before Rhodes.

“We are not in a house of worship,” Kieselstein said. “There is no gospel according to Mr. Buckfire or Mr. Orr.”

The dispute between Syncora, fellow bond insurer Financial Guaranty Insurance Co. and the city is one of the last fights preventing an amicable resolution to the largest municipal bankruptcy in U.S. history.

Syncora and FGIC are fighting Detroit’s bankruptcy plan because they face massive losses after insuring a $1.4 billion debt deal brokered by Mayor Kwame Kilpatrick’s administration in 2005 to fund pension payments.

The city wants to wipe out that debt, deliver smaller cuts to pensions and green-light a $1.4 billion, ten-year reinvestment plan in services, including police, fire and blight removal.

Kieselstein said the plan unfairly gives preferential treatment to retirees over other creditors.

“This plan has epic levels of discrimination,” said Kieselstein, who repeatedly argued that the city has no business justification for, as he sees it, giving retirees a better deal than others. He also argued: “It didn’t have to be this way.”

Pensioners this summer voted in favor of Orr’s plan, which calls for general retirees to take a 4.5 percent pension cut and lose annual inflation adjustments. Retired police officers and firefighters would lose only a portion of their annual cost-of-living raise.

Kieselstein argues the grand bargain is flawed and discriminatory: Pensioners get something; other creditors get nothing.

“This is where the line is crossed, in my view,” Kieselstein argued.

Kieselstein also challenged Orr’s claim that the impact of Detroit’s bankruptcy on pensioners involves a “human dimension” — meaning the pensioners are people who did nothing wrong to deserve hardship.

Kieselstein said that theory is legally impermissible under bankruptcy law.

“Bankruptcy is sadly the land of broken promises,” he said.

Jones Day attorney Bruce Bennett defended the city’s plan as fair and said it’s imperative for the city to invest in basic services after exiting bankruptcy.

“The evidence will show that Detroit has a better future after Chapter 9,” Bennett said. “Detroit has earned this court’s help.”

Critically, Bennett said that the city’s elected officials support the plan of adjustment, despite some quibbling about the details of the reinvestment plan.

That’s crucial because Rhodes — who has the power to approve or reject the plan of adjustment following the trial — has emphasized that the city’s politicians must be committed to the plan after Orr is gone.

Mayor Mike Duggan and City Council President Brenda Jones will testify during the trial that they understand the plan of adjustment and will implement it.

But Bennett acknowledged that some changes will be necessary to accommodate for unforeseen events.

“In the future things will happen that we have not planned for,” he said, and the city “will have to adjust.”

As for Syncora’s claims that retirees are getting preferential treatment, one lawyer scoffed at that idea.

Attorney Sam Alberts, who represents the U.S. government-appointed Official Committee of Retirees, said in court Wednesday that post-bankruptcy effects will be “life-changing” for retirees and that they will face “drastic” cuts in health care benefits.

Kieselstein said the plan “unfairly discriminates, fails the best interests tests and is not fair and equitable.

He added: “This isn’t Back to the Future. Mr. Orr is not Marty McFly. He cannot pilot the DeLorean back in time,” he said in reference to the 1980s film Back to the Future.

Bennett argued that the plan of adjustment will place the city on a path to an economic recovery by restoring services and drastically reducing the city’s crushing debt load.

Bennett said the Chapter 9 restructuring would prove that Gov. Rick Snyder was correct to authorize the largest municipal bankruptcy in U.S. history.

It should “not be viewed as the lowest point in city’s history but the beginning of the city’s recovery,” Bennett said Wednesday.

AFP Photo/Bill Pugliano

Investors Offer $4B Loan To Bankrupt Detroit With Art Museum As Collateral

By Nathan Bomey, Detroit Free Press

DETROIT — An investor group offered to loan the City of Detroit as much as $4 billion — up from a $2 billion offer in April — to help the city pay off creditors, reinvest in services and emerge from Chapter 9 bankruptcy.

But the deal would require the city to pledge the Detroit Institute of Arts and its collection as collateral to secure the loan — a process that would be highly unlikely considering it would require a legal battle over rights to the city-owned museum’s prized collection.

What’s more, a person familiar with the framework of the deal — proffered by New York-based Art Capital Group — told the Free Press it would likely require Detroit to sell some of the DIA’s artwork to pay off the loan.

Art Capital disputed that suggestion.

“We can structure it to make it affordable and greatly reduce the remote possibility that any sales would ever occur,” Art Capital spokesman Montieth M. Illingworth said in an e-mail Wednesday. “One of our goals here is to ensure that the collection stays in Detroit and stays intact and there are no sales, not one piece. We know that’s important to the city.”

Illingworth said options include allowing interest-only payments in the early years or spreading out the payments over a long period of time.

The timing of the offer, less than a week before Detroit’s historic bankruptcy trial is set to begin on Tuesday, illustrates that holdout financial creditors will attempt to prove the city is not getting enough money for the DIA.

Detroit emergency manager Kevyn Orr wants the city to accept the equivalent of $816 million over 20 years from the state of Michigan, nonprofit foundations and the DIA to reduce pension cuts and allow the museum to spin off as an independent institution. The deal, which has been dubbed the grand bargain, has drawn fierce opposition from bond insurers Financial Guaranty Insurance Co. and Syncora.

The insurers are expected to argue during the city’s bankruptcy trial that the DIA is being given away for far less than it’s worth.

“The city cannot ignore the fact that the Art Capital proposal is a game changer,” FGIC said in a statement provided to the Free Press. “It represents a real and viable solution that could enhance recoveries for all creditors by billions of dollars and catalyze the revitalization of the city – while also keeping the DIA collection in Detroit. It is an extremely attractive option for all stakeholders and a win for all sides. Choosing to proceed with the inferior ‘grand bargain’ would be opting to disregard common sense at the expense of all parties.”

Art Capital’s original offer, which was solicited by FGIC, was for a $2 billion loan to the city at an interest rate of 6 percent to 9 percent, secured by the DIA.

The investor group said today that it had increased its loan offer after an art adviser hired by FGIC, Victor Weiner, recently estimated that the museum’s entire collection is worth more than $8 billion.

The city swiftly dismissed Art Capital’s latest proposal. Bill Nowling, a spokesman for Orr, said the city is “100 percent committed to the grand bargain.”

“The city will not sell or leverage the art,” Nowling said in an e-mail. “This latest proposal is nothing but a thinly veiled attempted by our remaining hold-out creditors to improve their recovery at the expense of the city’s pensioners and its cultural assets.”

ArtVest Partners co-founder Michael Plummer, who was hired by the city to evaluate the worth of the DIA, concluded in a recent expert report that the Art Capital deal was “not economically viable.”

Complicating matters is a bitter dispute about whether the DIA’s property legally can be sold. The museum’s leaders have vowed a legal battle if the city pursues a sale or a collateralized loan.

Of course, if the city can’t establish ownership rights, pledging the art as collateral is not an option.

But Art Capital said the deal is “the only solution on the table in Detroit which enables the city to address the vast scale” of its liabilities. The city listed some $18 billion in debt and liabilities when it filed for Chapter 9 bankruptcy in 2013.

If the city were to default on an Art Capital loan, the firm said it would “do everything we can to keep the DIA’s art collection in the city and intact.”

Bankruptcy law does not allow creditors or the judge to force the city to sell assets, but the judge can reject a plan that does not properly account for the value of assets it chooses to sell.

Photo: ifmuth via Flickr