Detroit — The city’s bankruptcy case enters another critical phase today when closing arguments in a weather-delayed trial over Detroit’s plan to end a troubled pension debt deal resumes in federal court.
U.S. Bankruptcy Judge Steven Rhodes could rule this week on the city’s proposal to pay UBS AG and Bank of America $165 million to end an interest rate swaps arrangement tied to $1.44 billion in money borrowed in 2005-06 to prop up Detroit’s pension funds.
Emergency Manager Kevyn Orr is delaying the filing of his debt-cutting plan of adjustment until Rhodes approves or rejects the deal, spokesman Bill Nowling said. “We’ve got to get that done so we can bake that into (the plan of adjustment),” Nowling said.
Rhodes abruptly halted a trial last month over Orr’s original plan to pay the two banks $230 million after questioning whether the settlement of 75 cents on the dollar was unfair to other creditors who face the prospect of a much smaller recovery.
UBS and Bank of America agreed to a lower payout during Christmas Eve negotiations with the city and insurers of the swaps and underlining pension debt. Creditors that remain opposed the deal will get to make their closing arguments in court today.
Closing arguments in the trial were supposed to be wrapped up last week, but the hearing got postponed twice because of the inclement weather. Attorneys for Detroit and retirees, bondholders and banks also were hunkered down in closed-door negotiations last week in New York City over the city’s debt-cutting plan of adjustment.
Nowling said Orr has backed off his goal of filing the debt-cutting plan in early January to give creditors more time to strike deals in an effort to build consensus over Detroit’s financial reorganization.
“If we’re making some fruitful headway in mediation, it’s in everyone’s interest that we accomplish that in mediation and then bake that into the plan,” Nowling said. “If we’re close to getting some agreement with some things, we want to make sure we get that into the plan, because that’s less things you have to litigate.”
The city also is asking Rhodes for permission to dedicate a portion of income and casino tax revenues toward a $285 million loan from London-based investment bank Barclays. The city originally planned to borrow $350 million from Barclays at a minimum 3.5 percent interest rate that, under the terms, could rise by an additional 3 percentage points.
Barclays is charging Detroit a 1.25 percent fee, or $4.4 million, to process the loan, half of which the city has already paid.
Orr wants to use $165 million from the loan to pay the banks to end the swaps deal and spend the remaining $120 million on city services and public safety.
“I suspect Judge Rhodes will approve it,” said Laura Bartell, a bankruptcy law professor at Wayne State University who has been following the case closely.