Detroit Wins Judge’s Nod for Contract Settlement
Source: NY Times
By MARY WILLIAMS WALSH
A federal judge on Friday approved this bankrupt city’s latest attempt to extricate itself from some long-term financial contracts that have been costing it tens of millions of dollars a year, holding up its settlement as an example of “the very spirit of negotiation and compromise” that he hoped other creditors would follow.
Judge Steven W. Rhodes of United States Bankruptcy Court for the Eastern District of Michigan ruled that Detroit could proceed with a plan to pay $85 million to UBS and Bank of America over several months to terminate the financial contracts, known as interest-rate swaps. The city entered into the swaps in 2005 as part of a transaction that was supposed to help finance pensions.
Under the terms of the new settlement, the two banks agreed to back Detroit’s overall plan of adjustment, which is critical for the city’s push to resolve its bankruptcy by early fall. Municipal bankruptcy rules say that if one class of impaired creditors votes to approve the city’s plan of debt adjustment, the judge may be able to impose the terms forcibly on everybody else.
The state law that put Detroit under emergency management is scheduled to expire in September. There are concerns that the case will end up in a hopeless quagmire if creditors continue to fight settlement proposals and the bankruptcy remains unresolved by the time the emergency manager, Kevyn D. Orr, ends his term.
FULL story at link.
Read more: http://dealbook.nytimes.com/2014/04/11/judge-approves-pact-to-end-detroit-swap-deal/?partner=EXCITE&ei=5043
Joshua Lott/Reuters
Detroit is hoping to exit bankruptcy by early fall.