Detroit finds bankruptcy deal with big banks

March 14, 2014
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The city of Detroit is still in the process of seeking approval for a plan to restructure its debt, amid complaints from a number of affected parties, including pensioners of the city. In a recent development, on March 3, the city reached a deal with two large investment banks to end expensive interest rate swaps, according to Reuters. This could give the city much needed access to income from its casinos and potentially give it leverage to restructure its debt with other creditors. The city has made two previous attempts to end the interest rate swaps, but the deals were shot down by U.S. Bankruptcy Judge Steven Rhodes, who felt that the $165 million and $230 million price tags associated with the deals were too expensive for the bankrupt city to afford, according to the news source. The new plan to terminate the swaps, which were used to hedge interest rate risks on some Detroit pension debt, would cost the city only $85 million. In a March 3 filing, the city argued for Rhodes to approve the deal, which it said could help Detroit win federal court approval of a plan to restructure its $18 billion of debt and exit bankruptcy. This plan would give Detroit “critical funds that we can invest to improve the quality of life in Detroit,” Detroit emergency manager Kevyn Orr told CNN Money. Judge Rhodes will still have to approve the plan before it can move forward. Rhodes’s dismissal of earlier plans was applauded by some of the city’s other creditors, because it put big banks on the same level as pensioners and other lower-priority creditors, according to the news source. Detroit filed for protection under Chapter 9 of the bankruptcy law, which, according to Reuters, means that an approval of a deal with a single class of creditors with interests impaired by a bankruptcy could mean that the city could then seek to impose settlement terms on other creditors.