Mediators Throw Support Behind Detroit Swaps Deal
Two federal judges acting as mediators in Detroit's bankruptcy case are recommending that a deal to end costly interest-rate swaps be approved.
The mediators, U.S. District Chief Judge Gerald Rosen and U.S. Bankruptcy Judge Elizabeth Perris, said the settlement, while not perfect, serves the best interests of the banks and the city.
"As is the case in almost all settlements in bankruptcy [or in most litigation], this settlement, and the Mediators' recommendation of it, can best be captured and characterized by the admonition, 'Do not allow the perfect to become the enemy of the good,'" the mediators said Monday in a filing in U.S. Bankruptcy Court in Detroit.
The deal calls for a substantial reduction in the fee to end the swaps deal from an original agreement struck with the city's lenders, Bank of America Merrill Lynch (BAC) and UBS AG (UBS).
"We believe this settlement is a significant first step in the resolution of Detroit's bankruptcy," the judges said in court papers.
The banks had originally agreed to terminate the city's debt on deals to help finance city employee pensions in exchange for $220 million. That proposed settlement would have netted the city about a 25% cut from the $293 million it owed on the secured debt.
The revised deal reduces the termination-payment amount to $165 million, increasing the city's estimated savings to $ 128 million.
To pay the banks, the city had earlier secured $350 million in financing through Barclays PLC (BCS). As a result of the mediation deal announced Tuesday, Detroit agreed to lower the financing loan to $288 million.
The new agreement and loan package still need the approval of U.S. Bankruptcy Judge Steven Rhodes. A hearing on the matter is scheduled for Jan. 3.
It was Judge Rhodes who last week encouraged the city to try to renegotiate a questionable deal to restructure about $ 300 million in secured debt, city officials said.
Detroit, which is currently working to restructure an estimated $18 billion in debt, filed for bankruptcy in July.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)
--Matthew Dolan contributed to this article.
Write to Tom Corrigan at email@example.com
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