City officials in Detroit preparing to defend their plan for exiting bankruptcy will not consider a new loan proposal from a firm that wants to use the ' collection as collateral, the reports.
The , which in April offered the city a $2 billion loan at an interest rate of at least 6 percent, has told the city that, based on a new appraisal which values the DIA collection at $8.1 billion, it is now willing to lend the city as much as $3 billion. City officials, however, are banking on a so-called "grand bargain" backed by unions, retiree groups, and pension funds that would direct $816 million in foundation, state, and DIA-raised funds into shoring up pensions for retired city employees while transferring ownership of DIA to a nonprofit organization that would keep the collection intact. An earlier appraisal commissioned by the city valued the collection at between $2.8 billion and $4.6 billion and suggested that liquidating the collection would flood the art market with work and raise no more than $1.8 billion.
"The city supports and is committed to the grand bargain," Bill Nowling, a spokesperson for the city's emergency manager, Kevyn D. Orr, told the Times. "I am sure there are many suggestions on how the DIA collection can be monetized, but outside of the grand bargain, such discussions are academic."
To exit bankruptcy, the city has requested proposals for a loan of up to $300 million that would be secured by income taxes. Supporters of Art Capital's proposal told the Times the loan would have the advantage of not tying up a critical city tax stream in the event of a default. In addition, some of the city's creditors have argued that the grand bargain might be illegal. Bankruptcy law calls for equally ranked creditors to be treated in similar fashion, but some creditors argue that the grand bargain effectively sells DIA's collection to a bankruptcy-proof entity at below-market prices while leaving unsecured creditors in the lurch.
The Financial Guaranty Insurance Company and Syncora Guarantee, two of the city's bond insurers opposed to the grand bargain, have been ordered by U.S. Bankruptcy Judge Steven Rhodes to work with the bankruptcy's chief mediator to work out their objections to the way Detroit plans to handle their claims. Meanwhile, the city has filed a motion with the court to have Victor Wiener, who wrote the report commissioned by Art Capital, rejected as an expert witness.
The vastly different appraisals could be a signal for Detroit to slow down and give its exit strategy the straight-face test, James E. Spiotto, a bankruptcy lawyer who consults with cities, told the Times. "Remember, there's a great impetus, as you get to the end of a Chapter 9 bankruptcy, to confirm the plan," said Spiotto. "But more important than confirming the plan is doing the right thing."