Detroit reaches deal with banks to pay off swaps for $85 million
Updated On: Mar 03 2014 11:42:50 PM EST
The city of Detroit has reached a deal with banks to pay off swaps for $85 million.
Detroit Emergency Manager Kevyn Orr's spokesman, Bill Nowling, confirmed the deal Monday night.
In December, Orr said an agreement was reached to terminate the swaps deal for $165 million with UBS and Bank of America. Before that deal, Orr had said the payoff amount was $220 million.
The actual amount Detroit owes is $286 million. As of Monday night, Orr and his team have reached a deal to settle it for $85 million.
The Kwame Kilpatrick administration entered into this deal, which many think is actually illegal. It was costing Detroit $50 million a year and was supposed to fix the city's underfunded pensions.
What it did was throw Detroit further into the hole.
Twice before, Orr had come to the table with a negotiated settlement with the banks, and twice federal bankruptcy Judge Steven Rhodes said no dice
Is settling this for $85 million rather than $286 million sweet enough for the judge? The expectation of insiders is yes.
Orr said in a statement Monday that the latest deal balances the needs of the city and its creditors. He said he looks forward to Rhodes' decision on the proposal.
"We are pleased to have resolved this matter with UBS and Merrill Lynch," Orr said. "We appreciate the banks' willingness to work with us to reach a solution that we think balances our goal to provide realistic recoveries to creditors while freeing up critical funds that we can invest to improve the quality of life in Detroit."
These major banks are now signing off on Orr's plan of adjustment, which puts real pressure on the rest of the creditors to come to the table.
Rhodes has set a June 16 trial on Detroit's plan to deal with its estimated $18 billion debt and emerge from bankruptcy. Under Detroit's plan, pension holders could expect to get 70 percent to 90 percent of what they are owed, while many banks would receive as little as 20 percent.
The city filed a plan of adjustment last month, which is meant to be a blueprint for how the city will go through and get out of bankruptcy.
Gov. Rick Snyder is seeking the Legislature's support for the state to kick in $350 million toward pensions, with private benefactors contributing a similar amount in exchange for protecting the collection of the Detroit Institute of Arts from being sold.