Retirees and employees have voted to accept benefit cuts under Detroit’s bankruptcy blueprint, but not all creditors are on board. Two of the biggest holdouts are bond insurers.
Some are cooperating with Detroit’s plan, but not Syncora Guarantee Inc.
“They’re fighting tooth and nail against the city’s proposed settlement, because it’ll cost them money,” says Alan Schankel, a municipal research analyst at Janney Montgomery Scott.
Syncora and Financial Guaranty Insurance Co. (FGIC) insured almost $1.5 billion of Detroit’s pension debt. The city is offering ten cents on the dollar, or less. That may not be enough.
“Bond insurers got in a lot of trouble in the 2008 crisis. A lot of them were investing in some very exotic derivatives and other things,” says Eric Scorsone, a public finance economist at Michigan State University.
Syncora was insuring mortgage backed securities and other complicated financial products, says analyst Alan Schankel. As the housing crisis hit, Syncora lost capital and its AAA rating.
This all comes at a time when fewer muni bonds are even getting insured. Schankel says before the financial crisis, more than half of new bonds got insurance.
“This year to date that percentage is 4.85 percent,” he says, calling it a precipitous drop.
He believes marketshare will improve over time. The question is whether it will happen in time for Syncora.