(Bloomberg) — A bond insurer wants the chance to fight Detroit's effort to cancel $1.4 billion in pension debt, while the city is asking a judge to take a bus tour of its blighted areas before ruling on its $18 billion bankruptcy plan.
The insurer, Financial Guaranty Insurance Co., along with investors who would be wiped out by the plan, wants to take part in a lawsuit Detroit filed to cancel the debt, which was issued in 2005 and 2006 to prop up public worker pensions. FGIC and the investors claim that a trustee now opposing the suit won't represent their interests adequately.
FGIC faces $1 billion in claims over pension bonds if the city succeeds in throwing out the debt, Edward Soto, an attorney for the bond insurer, told U.S. Bankruptcy Judge Steven Rhodes in Detroit yesterday.
Canceling the debt will free up money to pay other creditors, said Chris DiPompeo, one of the city's attorneys. Letting FGIC and the investors participate in the lawsuit would make the case more complex and may disrupt the city's plan to seek approval of its debt-adjustment proposal in July, he said.
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