Kevyn Orr, Detroit’s emergency financial manager, said the city was hoping to be able to conclude its record $18 billion bankruptcy and exit by Oct 15. This is just less than 18 months after filing for bankruptcy because it couldn’t pay creditors while also providing essential services to its 700,000 residents.
Orr was in court to seek approval of an $85 million settlement with UBS AG (UBSN) and Bank of America Corp. in an effort to end interest-rate swaps that have cost taxpayers $200 million since 2009. He testified in front of U.S. Bankruptcy Judge Steven Rhodes that by Jan. 31, after earlier settlements fell through, he was prepared to sue if the banks didn’t accept less than $100 million.
Orr said he instructed his negotiating team to tell the banks: “You’ve got to be below 100 to be serious.”
Rhodes is planning to announce his decision on the settlement at an April 11 hearing.
He said he canceled plans for a lawsuit because the banks agreed to negotiate a lower amount – an $85 million payment, made in installments, to end swaps that normally would have cost the bankrupt city $288 million to terminate.
The swaps settlement assumes the city may exit bankruptcy by Oct. 15 according to Orr. And the banks can collect interest on the balance if it hasn’t paid all the $85 million by that date. After exiting the bankruptcy Detroit will have 180 days to complete the payments.
Just One of Many
The swaps are just one amongst many issues Orr is trying to resolve before the city council can remove him from his post in September. Unions and retiree groups have objected the proposal Orr set forth to cut pensions for public workers.
In January, Rhodes rejected as too costly a proposal to pay $165 million (down from a prior $230 million deal) to end the swaps.
Source: Bloomberg, Detroit Manager Says City May Exit Bankruptcy by October, April 3, 2014