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Detroit bankruptcy judge on board for bus tour of city

DETROIT (Reuters) - The federal judge overseeing Detroit's historic bankruptcy case on Thursday indicated he is willing to join a bus tour proposed by the city, while rejecting demands by a major creditor in the case for an explanation of how a legal opinion was reached.

Judge Steven Rhodes, who is no stranger to Detroit having served there as a bankruptcy judge since 1985, said in court he was open to the idea of a tour as long as its timing and locations are not publicly disclosed.

Detroit had argued that a site visit would provide important evidence for Rhodes as he determines whether Detroit's plan to adjust $18 billion of debt and exit the biggest municipal bankruptcy in U.S. history is fair and feasible.

But some city creditors, including bond insurance companies and European banks that own Detroit debt, objected to the tour, calling it improper and unnecessary.

Meanwhile, Syncora Guarantee Inc, one of the few remaining hold-out major creditors in the case, dropped its demand for personal financial information for some 20,000 retired city workers. Detroit had vehemently protested the move, but agreed on Thursday not to use the financial hardships of retirees as an argument for their treatment in the debt adjustment plan.

The judge had urged the parties not to make the financial conditions of retirees relevant to the case, warning it would make the case unwieldy and that the financial conditions of other creditors, including Syncora, would also become relevant.

James H.M. Sprayregen, a partner at Kirkland & Ellis who represents Syncora, told Reuters on Wednesday that Syncora's request was reasonable given the city had been citing the greater economic harm to retirees versus financial creditors for justifying the disparate treatment of those creditor groups.

He also said Syncora, which has a nearly $400 million exposure to Detroit mainly from insuring defaulted city pension debt, was facing a recovery of just pennies on the dollar under the city's debt adjustment plan.

Rhodes ruled against an attempt by Syncora to question officials at philanthropic foundations about negotiations that led to their participation in the so-called grand bargain with pledges of $366 million to ease pension cuts for city retirees and protect the Detroit Institute of Arts' collection from being sold to pay city creditors.

However, the judge agreed to allow Syncora to access information from the foundations on how they intend to raise money for their part of the grand bargain.

Rhodes sided with Michigan Attorney General Bill Schuette, who was fighting a Syncora subpoena for a deposition, saying there was no legal basis for questioning him about a legal opinion he issued.

Syncora had wanted to depose Schuette about his 2013 opinion that the collection at the Detroit Institute of Arts cannot be sold, conveyed or transferred to satisfy the city's debts. Schuette had contended that deposition of state attorneys general on how and why they reached legal conclusions were not allowed by courts.

Rhodes has scheduled an Aug. 14 start date for a confirmation hearing on Detroit's plan.

(Reporting by Cherie Curry in Detroit; Additional reporting by Karen Pierog in Chicago; Editing by Eric Walsh)

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