Detroit’s proposal to pay $85 million to cancel interest-rate swaps that cost taxpayers more than $200 million, part of the city’s attempt to trim debt in bankruptcy, won’t be in final form until next week.
The city has struggled to get final wording for the deal with UBS AG (UBSN) and Bank of America Corp.’s Merrill Lynch unit, attorney Robert S. Hertzberg told U.S. Bankruptcy Judge Steven Rhodes today. Rhodes asked how he could be certain that the city will be ready to seek approval at an April 4 hearing.
Hertzberg assured the judge, who rejected a previous version of the proposal, that a final agreement will be ready on March 26. The settlement, a 70 percent reduction of what the city was liable for under the swaps agreement, will release Detroit from claims by the banks.
The agreement, if approved, would remove one obstacle in the city’s record $18 billion municipal bankruptcy. Detroit last month submitted a debt-adjustment plan to the court that offers bondholders about 20 cents on the dollar for their claims and reduces payments on general employees’ pensions by about one-third. Rhodes set a June trial on plan approval.
Under the swaps accord, UBS and Merrill Lynch would vote their impaired claims in favor of the debt-adjustment plan.
In January, Rhodes rejected as too costly a proposal to pay $165 million to end the swaps. That was a reduction from a deal reached days before the city’s July bankruptcy filing to pay $230 million.
The issue came up today as part of a fight over how much information about the proposal the city must disclose to a committee of retirees fighting the deal. Rhodes ordered the city to turn over more information.
Under the 2009 swaps agreement, the banks had the right to seek control of Detroit’s casino taxes, which the city pledged as collateral. The swaps, tied to pension obligation bonds issued in 2005 and 2006, were designed to protect against rising interest rates by requiring the banks to pay the city if rates rose above a certain level.
Since filing for bankruptcy, Detroit has fought with its labor unions, retirees, bondholders and bond insurers about how the case should proceed.