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

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

The plan should be rejected immediately, Syncora argued in court papers, because of flaws in the mediation process that produced the so-called grand bargain settlement. The accord would bring in more than $800 million in exchange for protecting the city-owned Detroit Institute of Arts, or DIA, from creditor liquidation.

The settlement is “the product of agenda driven, conflicted mediators who colluded with certain interested parties to benefit select favored creditors to the gross detriment of disfavored creditors and, remarkably, the city itself,” Syncora said in its filing.

The city filed for bankruptcy last year, saying that decades of decline and the disappearance of manufacturing jobs left it unable to meet financial obligations while providing basic services to its 700,000 people.

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

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

When the trial starts later this month, the judge will consider whether the plan is fair to creditors and feasible. Dozens of witnesses 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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Bond insurer Syncora says biased mediators brokered Detroit bankruptcy art deal

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