NANCY KAFFER
Nancy Kaffer: Another day, another shameless attempt to steal DIA's art
Why wouldn't Detroit want to get $3 billion for its art, compared to a measly $816 million?
Oh, let me count the ways. An eleventh-hour, $3-billion loan proposed by New York-based Art Capital Group, to be collateralized by the Detroit Institute of Arts' collection, seems to be nothing more than a tactic to disrupt the city's bankruptcy confirmation hearing.
It's the latest in a series of increasingly desperate creditor maneuvers aimed at forcing a sale of DIA art.
Bond insurers Syncora and Financial Guaranty Insurance Co. (FGIC) have spent months eying the museum's collection with all the subtly of Wile E. Coyote setting a trap for the Roadrunner, and with the start of the city's bankruptcy hearing set for next week, it seems they're doubling down.
There was the time that the insurers wanted to remove artwork from the DIA's walls to evaluate its worth, a request that seems akin to my 4-year-old promising he's just going to hold that lollipop, no, really. That was around the same time a Syncora attorney called the DIA "a glittering link to the glory days of Detroit, " but said the collection should be sold to satisfy "grubby" debts.
Then there was the time Syncora tried to get retirees' personal financial data, ostensibly to make the case that pensioners were being hurt by the grand bargain, some months after the insurers and the retirees came very close to agreeing to pursue a sale of the art, a deal derailed only by the prospect of the grand bargain — oh, and then there was the time FGIC and Syncora solicited bids for the DIA's collection, which is kind of like me having your house appraised.
Most recently, Syncora accused Detroit bankruptcy mediators Gerald Rosen and Eugene Driker of "naked favoritism"; the city has asked U.S. Bankruptcy Judge Steven Rhodes to censure the insurer, or require it to apologize.
Then there's this $3-billion loan.
Because protecting retirees' pensions and the DIA's collection is so important, the state, the DIA itself and nearly a dozen philanthropic foundations have pledged the equivalent of $816 million (an agreement called the grand bargain) to help the city pay for its underfunded pensions. In return, the city-owned artwork housed at the DIA would become the property of a nonprofit, safe from any future municipal financial fluctuations.
Art Capital claims that the city won't negotiate on its proposal (this spring, the company was offering $2 billion), but an analyst consulted by the Free Press said it's unlikely the city could pay that debt without selling some of the DIA's artwork. A good rule is to borrow only as much as you're capable of paying back, something the city's had problems with in the past. And despite its promise of a "reasonable" interest rate, Art Capital is offering 6%-9% — the most recent debt issued by the Detroit Water and Sewerage Department carries a 4.25% interest rate. Any move to use the collection as collateral would trigger the same complicated, expensive legal battles as would an outright sale.
So when the New York Times broke the news of this $3-billion loan, saying that information was provided by "a person opposed to the grand bargain" — draw your own conclusions.
If the insurers can show that the city ignored viable offers, it hopes to make the case that pensioners got preferential treatment, and that Detroit's bankruptcy plan is illegal. It's true that pensioners are taking less draconian cuts than those proposed to FGIC and Syncora. But major corporations have ways to mitigate risk. Higher interest rates or fees, reams of research evaluating whether this deal or that is advisable. Retirees just have promises, and decades in which to make do with less.
Under the law, creditors in municipal bankruptcy must be treated fairly — not equally. Will Rhodes consider Detroit's plan fair? We'll find out.