In a Dealbook article that goes out of its way to promote the bond insurers’ objections to Detroit’s Grand Bargain, The New York Times throws everything it can at the deal. Despite the guidance of two Federal judges, the Times repeats the bond insurers’ claim that the deal treats Detroit’s pensioners as preferred creditors. The story also reveals an appraisal of the collection that is 10x the value determined by Christie’s and Artvest (which, it has to be said, were both done more to promote the firms doing the appraising and provide the city’s emergency manager with a fixed point to negotiate from.)

What’s most troubling about the Times advocating for the bond insurers is that the latest plan being touted doesn’t help the city. A sale would retire debt but a new loan only defers payment and increases the amount through interest. If Detroit were taking a loan against its art to build infrastructure that could attract citizens and industry which, in turn, would improve the tax base, the idea might have some merit. But that’s not the case here.

Details of Art Capital’s proposal came from a term sheet, marked “proprietary and highly confidential,” that was provided to The New York Times by a person opposed to the grand bargain. Terms were said to be subject to negotiation, but the city will not negotiate. […]

Art Capital is proposing a loan that would range from $500 million to $3 billion, which could be cut up into different maturities and repayment schedules. Interest rates would be based on the benchmark rate known as Libor plus 5.5 to 8.5 percentage points, which analysts say would be reasonable for a bankrupt city that is preparing to repudiate some of its debt. Art Capital’s supporters say its loan would have the advantage of not tying up an essential city tax stream in the event of a default because it would be heavily collateralized by the artwork.

Both loan options would be repaid by the city’s revenue streams, like income, property and casino taxes.

Detroit Mum on Proposal to Use Its Art as Collateral  (NYTimes.com)