By Edward Krudy
(Reuters) – Detroit’s emergency manager Kevyn Orr showed little enthusiasm on Wednesday for a new proposal from a bond insurer to sell or securitize the insolvent city’s world-class art collection.
The collection, housed at the Detroit Institute of Arts, has been in question since Detroit filed for an $18 billion municipal bankruptcy last July, the largest in U.S. history.
The city is pushing what it calls a “Grand Bargain” to save the collection by raising about $815 million from the state, private donors and several foundations to pay the city for the entire collection. That would stop any potential move to break it up and sell it off to pay off the city’s creditors.
But bond insurer FGIC Corp, which insurers $1.1 billion of the city’s pension debt, said on Wednesday it had received proposals from “credible third parties” for acquiring or monetizing the collection that would generate $1 billion to $2 billion for the bankrupt city, considerably more than Orr’s current plan.
Orr poured cold water on that idea in an interview with Reuters late on Wednesday. “We have no intention of selling art,” Orr said. “In a Chapter 9 you cannot compel the city to sell anything, not a park, not a zoo, not the DIA.”
The nearly 3,000 works owned or partially owned by the city were valued by Christie’s in December at between $452 million and $866 million. Those works represent only about 5 percent of the collection and Christie’s said 11 pieces on display at the museum account for 75 percent of the appraised value.
The DIA’s collection includes famous works such as Van Gogh’s ‘Bank of the Oise at Auvers’ (1890), Henri Matisse’s ‘The Window’ (1916), and Bruegel’s ‘Wedding Dance’ (1566).
Creditors have requested an expedited hearing for April 23, asking the city to “cooperate with interested parties seeking to conduct due diligence on the art collection housed at the Detroit Institute of Art,” according to a court filing on Wednesday.
Orr said securitizing the art collection, effectively using it as collateral to take out a loan, would be too expensive, attracting interest rates of 6 percent to 9 percent.
“We are trying to get out of exorbitant debt rates for municipal finance and that’s pretty high, so I’m going to put that aside,” Orr said.
The four proposals FGIC said it had received range from an offer to buy a small percentage of the DIA collection for between $896 million to $1.473 billion to using the collection as security for a loan to the city of up to $2 billion, FGIC said.
“How can the City even consider blindly forging ahead with the Grand Bargain when presented with real alternatives that would allow it to substantially enhance creditor recoveries (to the tune of $1 to $2 billion) while maintaining the DIA as a culturally relevant institution?” Steve Spencer, a financial adviser to FGIC, said in a statement.
(Additional reporting by Dan Burns; Editing by James Dalgleish and Ken Wills)
[Image: Detroit Emergency Manager Kevyn Orr addresses the media following a ruling by U.S. District Judge Steven Rhodes that Detroit is eligible for the biggest municipal bankruptcy in U.S. history in Detroit, Michigan Dec. 3, 2013. By Rebecca Cook for Reuters.]