Bond insurer Syncora Guarantee Inc. said that Detroit’s deal to refinance $388 million in bonds is illegal because part of the tax dedicated to paying the debt will be given to city retirement systems, Bloomberg News reported yesterday. As part of the bankrupt city’s plan to address $18 billion in obligations, holders of certain tax-backed bonds would get new debt worth about 74 percent of what they are owed. Detroit’s two retirement systems will take possession of the old bonds accounting for the other 26 percent and be able to collect from taxes dedicated to paying off the debt. The bond deal is one of several settlements or legal issues that U.S. Bankruptcy Judge Steven Rhodes must rule on as part of the city’s historic bankruptcy-exit proposal. Under that plan, Detroit would impose about $7.4 billion in cuts on bondholders, pensioners and other creditors.
