Throwing a wrench into Detroit's plan to exit bankruptcy, bond insurer Financial Guaranty Insurance sues, saying the deal illegally discriminates against a major group of creditors - those who poured in $1.4B for worker pensions in 2005.
Those investors purchased "certificates of participation," which was the first paper Detroit defaulted on ahead of its bankruptcy. The city calls the 2005 deal a "sham transaction" and its exit plan would give those investors one of the lowest recovery rates. Financial Guaranty says Detroit "seeks to turn a crooked eye to history."
The suit is about more than a higher payout to those investors. It could lead to a fight to claw back that $1.4B from Detroit's pension system. Current and future retirees make up Detroit's largest and second-largest unsecured creditors.