Judge pauses Detroit's bankruptcy trial again

By Lisa Lambert DETROIT (Reuters) - U.S. Bankruptcy Judge Steven Rhodes ordered a week-long break in Detroit's bankruptcy trial on Wednesday, giving the last major objector to the city's restructuring plan time to rework its case. The hearing will be adjourned from Friday and reconvene on Sept. 29. It was also placed on hiatus last week for three days while the city applied finishing touches to a settlement with another creditor, Syncora Guarantee Inc. Syncora formally withdrew its objections to the plan in on Tuesday, leaving Financial Guaranty Insurance Co (FGIC), which has $1.1 billion on the line, to lead the fight against the plan and the questioning of witnesses. The insurer said it needed time to organize its case. The hearing to determine if the plan is fair and feasible began on Sept. 2 and was expected to stretch through the middle of October. Even with the recess, the judicial and legislative processes of the largest municipal bankruptcy filing in U.S. history will keep progressing. On Friday, the city council is expected to vote on the creation of a water authority, part of another settlement Detroit reached last week. Then, Rhodes will hold an evidentiary hearing on Monday on the city's policy of shutting off water to delinquent bill payers. Civil rights attorneys have filed a class action seeking to halt Detroit's attempt at reducing a $90 million backlog of unpaid bills and asked Rhodes to issue a temporary restraining order. Meanwhile, FGIC and other, mostly smaller, creditors must file any objections to the latest version of the plan within the week-long break. They also must complete expert reports, and conduct any needed discovery and depositions. The latest version of Detroit's plan to restructure its $18 billion in debt and other obligations, released on Tuesday, offers FGIC some of the same terms of the Syncora settlement, which could garner it a 13.9 percent recovery. FGIC is pushing to monetize or sell the collection of the Detroit Institute of Arts instead. But if Rhodes approves the plan as it currently stands he could impose its terms on FGIC in what is known as a "cramdown." WATER AUTHORITY ON TAP FOR CITY COUNCIL Also on Wednesday, Detroit Mayor Mike Duggan urged the city council to support a proposed Great Lakes Water Authority (GLWA)that would allow the city to maintain control of its water and sewer services, while gaining $50 million a year for 40 years from leasing the systems to the new regional authority. Detroit and at least one of three southeast Michigan counties served by the city's water and sewerage department must approve the deal by Oct. 10. Without an affirmative vote on Friday, Duggan said Detroit Emergency Manager Kevyn Orr could opt to privatize the system. Council President Brenda Jones raised concerns that Detroit must put the authority before voters under the city charter. But Duggan said there was no time for a vote, while his legal staff said Michigan law suspended Detroit's charter as long as Orr is emergency manager. A few blocks away at the bankruptcy hearing, the water and sewer department's director, Sue McCormick, testified she supports the proposed authority. "I think it is - for the city and for the system - a very good solution," she said, adding the authority would help the department meet capital needs, keep costs down, and promote affordability. (Additional reporting by Karen Pierog in Chicago; Editing by W Simon, J Benkoe and Matthew Lewis)