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Judge: Detroit Can Access Casino Revenues

CHICAGO In a victory for Detroit, the federal judge overseeing the city's bankruptcy case ruled Wednesday morning that the city can continue to access crucial casino revenue during a dispute over a proposed settlement on interest-rate swaps.

The ruling means the city can continue to tap roughly $11 million a month in casino revenue, which is used as collateral on a series of interest-rate swaps that hedge the city's pension certificate debt.

Syncora Guarantee Inc., which insures the swaps and the certificates, had asked for the revenue to be held by the swaps custodian and not given back to the city until the court decides on the settlement.

Rhodes ruled that Syncora cannot ask for the revenue capture because the insurer is not a party to the swap agreement. The ruling also overturns one of Syncora's key arguments challenging the proposed swap settlement, which is that the insurer has the right to weigh in on any potential swap termination.

The judge ruled that the casino revenue is protected by the bankruptcy case. "The court concludes the casino revenues are protected by the automatic stay," Rhodes said at the hearing. That ruling actually endorses one of the arguments made by other bond insurers challenging the settlement, who have said that the casino revenue should not be considered special revenues exempt from the bankruptcy case.

Rhodes will hear arguments on the swap settlement Sept. 9 and is expected to make a ruling on the deal then.

The city's proposed settlement with the two counterparties that hedge the swaps has sparked strong challenges from several bond insurers and the holders of the certificates.

The deal calls for the city to pay UBS AG and Merrill Lynch 75 cents on the dollar in swap termination fees, currently estimated at around $300 million. In return, the city would gain access to about $175 million in annual casino revenues, considered one of Detroit's most reliable revenue sources.

The dispute is in mediation this week with the parties set to meet with an Oregon bankruptcy judge Thursday. Detroit emergency manager Kevyn Orr and Ken Buckfire, from the city's investment banking firm Miller Buckfire, will also be deposed this week.

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