Detroit reaches settlement with creditor

Lawyers for Detroit said Thursday that the city had reached a settlement with its remaining big holdout creditor, clearing a significant obstacle from the city’s path as it works to emerge from bankruptcy.

Corinne Ball, a lawyer with the firm of Jones Day, told the bankruptcy court that the settlement with Financial Guar- anty Insurance Co. involved rights to build a hotel, retail and condominium complex on the site of Joe Louis Arena, a 5-acre riverfront venue that is now the home of Detroit’s hockey team, the Red Wings.

In addition, Ball said, the company will receive two types of notes valued at about $146 million, as well as about $20 million in “settlement credits” that Financial Guaranty can use if it wants to bid on other city assets that may move onto the market.

The agreement calls for the state to contribute $ 6 million to pay for demolishing existing structures and removing any contaminants from the site. The Red Wings already were planning to move to a new arena a few miles away.

Ball said the deal represented “a significant investment in Detroit’s future” that would round out the development of the city’s waterfront, now a mix of attractions and fenced-off empty space.

Financial Guaranty had raised strenuous objections to the deal at the heart of Detroit’s bankruptcy, which calls for the city to use hundreds of millions of dollars in donated money to bolster its pension fund and to move the Detroit Institute of Arts to a bankruptcy-proof entity.

Financial Guaranty had argued that the Institute’s celebrated art collection was an asset of the city that had to be used to help resolve all the city’s debts, not to benefit just one class of creditors, the city’s pensioners. The municipal bankruptcy rules say a plan of debt adjustment cannot discriminate unfairly among creditors in similar classes.

Timothy Travers, the chief executive of Financial Guaranty, said in a statement Thursday that he was satisfied the insurer was now receiving a recovery consistent with those for similar creditors.

He said Financial Guaranty had always believed in Detroit’s prospects for revival, and “this deal gives us the opportunity to participate in and help catalyze that revival.”