(Reuters) – Two insurance companies that guaranteed payments on Detroit's voter-approved general obligation bonds sued the city in U.S. Bankruptcy Court on Friday over its Oct. 1 default on $9.37 million in payments due to bondholders.
National Public Finance Guarantee Corp, the public finance subsidiary of MBIA Inc, and Assured Guaranty Municipal Corp claimed that Detroit's use of property taxes levied exclusively to pay off the bonds for operating expenses violated Michigan law.
The insurers asked U.S. Bankruptcy Judge Steven Rhodes, who is currently determining whether Detroit is eligible for municipal bankruptcy, to force the city to set aside the tax money for bond payments. They also want to make sure that tax money that had been earmarked for payment of the bonds would not be tapped for Detroit's proposed $350 million debtor-in-possession financing with Barclays PLC.
Sinking under more than $18 billion of debt and other liabilities, Detroit filed the biggest Chapter 9 municipal bankruptcy in U.S. history on July 18.
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