Detroit has reached a settlement with bond insurers over the treatment of some bonds in the city’s bankruptcy, Detroit emergency manager Kevyn Orr told CNBC Wednesday.
The settlement specifically pertains to unlimited-tax general obligation bonds, Orr said on “Squawk on the Street.” The agreement frees up roughly $100 million for the city’s pensions and “that’s pretty good,” he said.
“This class of creditors were supported by millage, a specific, dedicated revenue stream of about $388 million,” Orr said. “We’ve agreed with them and we couldn’t get it otherwise without their agreement.” He said the city will get 24 percent and the creditors will get 76 percent.
The settlement still needs to be approved by a bankruptcy judge. Orr said the settlement has been a long time coming, though, and “certainly helps us get forward.”
Bond insurers National Public Finance Guarantee Corp., a unit of MBIA; Assured Guaranty Municipal Corp., a unit of Assured Guaranty; and Ambac Assurance Corp., a unit of Ambac Financial Group, sued Detroit in November. They claimed Detroit was illegally diverting voter-approved property taxes to the general fund.
The city’s proposed plan of adjustment in its historic Chapter 9 bankruptcy case would give investors of $374.6 million in unlimited tax general obligation bonds as little as 15 cents on the dollar. As most bondholders have insurance, the insurers must cover their losses.
Representatives of the three bond insurers did not respond to emails seeking comment on the deal.
—By CNBC Staff and Reuters. CNBC’s Drew Sandholm contributed to this report.