The city of Detroit, with financial help from the state, plans to demolish Joe Louis Arena, the home of the Detroit Red Wings, and give the land to a creditor for development as part of a major settlement in the city’s bankruptcy case, lawyers said Thursday.
The deal was disclosed in court where Judge Steven Rhodes has been holding a trial to determine if Detroit’s plan to get out of bankruptcy is fair and feasible for the long run.
Financial Guaranty Insurance Corp., a bond insurer with a $1 billion claim, was one of the last critics still standing after months of settlements between Detroit and other creditors. But the land deal now puts FGIC, as it is known, on the sidelines and moves the trial closer to completion.
The Red Wings play in city-owned Joe Louis Arena along the Detroit River, but already are planning to move to a new home a few miles away in downtown Detroit. The arena and a parking garage would be demolished, giving Financial Guaranty nearly nine acres for a hotel, condominiums, office space or retail development.
The state of Michigan has agreed to provide $6 million for demolition, which likely would start in 2017. The land is considered to be a valuable parcel because it’s near Cobo Center, Detroit’s downtown convention hall.
It’s a “turning moment for this area of Detroit,” said Corrine Ball, a lawyer for the city who gave details in court.
Financial Guaranty attorney Alfredo Perez said it’s a “win-win” for the bond insurer and Detroit.
The deal was completed around 2 a.m. Thursday, and the judge held up proof: a photo of the negotiators that was emailed to him.
Detroit filed for bankruptcy in July 2013, following decades of decline. The city listed $18 billion in liabilities and said it couldn’t meet its financial obligations while still providing necessary services to the public.
The FGIC settlement eliminates significant hurdles because it strengthens arguments that the plan is equitable, said Doug Bernstein, a lawyer at Plunkett Cooney PC in Bloomfield Hills, who represents two charitable foundations involved in the case.
“It really should mean the plan gets confirmed if the judge finds the plan to be feasible in all other elements under the bankruptcy code,” Bernstein said. “You’ve got a vast majority of the creditors voting in favor of the plan. That satisfies the elements that it be fair and equitable and in the best interest of the creditors.”
Investors owed about $1 billion also reached a possible settlement, Corinne Ball, a lawyer for the city, told Rhodes. Those bondholders include funds managed by Aurelius Capital Management andBlueMountain Capital Management.
Thomas Moers Mayer, a lawyer for the group, told the judge his clients aren’t yet ready to withdraw their objections but should be able to decide in the next few days.
What’s next
Rhodes scheduled a hearing for next week, saying he still plans to take testimony from a court-appointed expert hired to examine the city’s proposal.
At the center of the plan is an agreement with the state of Michigan and large philanthropies to protect Detroit’s art collection in exchange for hundreds of millions of dollars to shore up public pension funds. Some opponents said the art should be sold or used to secure loans to repay creditors.
FGIC had claimed Detroit owed it more than $1 billion because it insured pension-related debt that the city proposes to pay at about 11 cents on the dollar. The bond insurer also said the plan was improper because it treated different creditors unequally.
“We are happy to report what has seemed like Detroit’s own version of the Gordian knot has been cut,” Ball said today in court. “We now have it done.”
