More mediation ordered over potential Detroit bankruptcy deal

DETROIT (Reuters) - A federal judge on Thursday ordered ongoing mediation in Detroit's historic bankruptcy over a potential settlement between the city and one of its fiercest creditors, while adding holdout creditor Financial Guaranty Insurance Co to the list of parties whose attendance is required. U.S. District Judge Gerald Rosen, the chief mediator in the bankruptcy case, ordered that mediation, which began on Thursday, will also take place on Friday and will continue "day-to-day thereafter as deemed necessary, until released by the mediators." The city and Syncora Guarantee Inc, the bond insurer that had been the fiercest holdout creditor in the case, notified the U.S. Bankruptcy Court on Tuesday that they had reached a settlement in principle. Sealing that deal would leave FGIC, another bond insurer, as the only major holdout creditor left in the biggest-ever municipal bankruptcy Detroit filed in July 2013. FGIC, which has a $1.1 billion exposure in the case from guaranteeing payments on the city's pension debt, issued a statement on Wednesday that said it remains open to "good faith settlement discussions." Both Syncora and FGIC faced recoveries of 10 cents on the dollar or less in the bankruptcy as other creditors including the city's pension funds reached deals. In order to settle with Detroit, Syncora must also settle claims and counter-claims with UBS AG and Bank of America Corp unit Merrill Lynch Capital Services over interest-rate swaps related to the pension debt it also insured. The investment banks were included in Rosen's previous and current mediation orders. U.S. Bankruptcy Judge Steven Rhodes on Wednesday put Detroit's case on hold until Monday in the wake of the potential deal. (Reporting by Lisa Lambert, additional reporting by Karen Pierog in Chicago; editing by Chizu Nomiyama and Matthew Lewis)