By Lisa Lambert

DETROIT (Reuters) - A federal judge has put a landmark trial on Detroit's plan to exit bankruptcy on hold until Monday, as the city neared a deal with bond insurer Syncora Guarantee Inc, one of its most formidable hold-out creditors.

Syncora had argued it had been short-changed compared to other creditors. If approved, the deal will see Syncora drop its objection to the restructuring and the trial - which is studying the feasibility of Detroit's plan to exit bankruptcy - could get a swift approval from U.S. Bankruptcy Judge Steven Rhodes.

Syncora and the city reached an agreement in principle and requested the delay late Tuesday. Rhodes approved the delay on Wednesday.

Under the agreement, Syncora will receive new notes totaling $23.5 million, according to a term sheet Emergency Manager Kevyn Orr released. Detroit's city council must approve the terms and is set to meet on Monday.

"(The settlement) should shorten the trial because if Syncora withdraws its objections, many of the witnesses will fall off the list," said Melissa Jacoby, law professor at the University of North Carolina at Chapel Hill.

Rhodes began a confirmation hearing on Detroit's plan to adjust $18 billion of debt last week and had scheduled hearing dates through Oct. 17.

Syncora would receive 26 cents on the dollar, compared with the recovery of 10 cents on the dollar the city originally offered, the Detroit Free Press reported, citing two sources familiar with the deal. Still, much of the settlement involves land and leasing deals, which could muddle an exact valuation of the company's recovery.

Syncora will form a subsidiary to handle the property deals in the settlement, which also extends the company's lease of part of the Detroit-Windsor tunnel.

The subsidiary would lease a parking garage for 30 years, investing $13.5 million over five years in upgrades and receiving all garage net income plus a 40 percent return. Meanwhile, it has the option of taking ownership of six empty downtown lots to develop.

The settlement also creates an asset pool that rests on the city issuing $88.4 million financial recovery bonds backed by parking revenue, carrying a 5 percent coupon and callable. Syncora would receive 24.055 percent of the pool, or a $6.25 million credit toward purchasing property and annual cash payments of $2.4 million from parking assets.

However, the deal requires that Syncora settle claims and counterclaims with interest-rate swap providers UBS AG and Merrill Lynch Capital Services, a unit of Bank of America (BAC.N) a source close to the negotiations said.