(Bloomberg) — An $800 million settlement underpinning Detroit'splan to exit from its record municipal bankruptcy was brokered bybiased mediators and should be thrown out, bond insurer SyncoraGuarantee Inc. told a federal judge.

Syncora, which may be forced to make up bondholder losses shouldthe plan be approved, filed its objection to the proposal today, asU.S. Bankruptcy Judge Steven Rhodes is to begin a monthlong trialon approving the city's bid to adjust $18 billion in debt.

The plan should be rejected immediately, Syncora argued in courtpapers, because of flaws in the mediation process that produced theso-called grand bargain settlement. The accord would bring in morethan $800 million in exchange for protecting the city-owned DetroitInstitute of Arts, or DIA, from creditor liquidation.

The settlement is “the product of agenda driven, conflictedmediators who colluded with certain interested parties to benefitselect favored creditors to the gross detriment of disfavoredcreditors and, remarkably, the city itself,” Syncora said in itsfiling.

The city filed for bankruptcy last year, saying that decades ofdecline and the disappearance of manufacturing jobs left it unableto meet financial obligations while providing basic services to its700,000 people.

Detroit has proposed cutting some retirement benefits andreducing payments to some bondholders, in addition to tapping thewater and sewage department for cash. The money raised as part ofthe DIA settlement would be used to shore up the pension plan.

Syncora has argued for months that is unfair and that theartworks should be sold to repay it and other creditors.

When the trial starts later this month, the judge will considerwhether the plan is fair to creditors and feasible. Dozens ofwitnesses are scheduled to testify.

The case is In re City of Detroit, 13-bk-53846, U.S.Bankruptcy Court, Eastern District of Michigan (Detroit).

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