CHICAGO — U.S. Bankruptcy Court Judge Steven Rhodes will rule Thursday afternoon on Detroit's interest-rate swap settlement in one of the most closely watched decisions of the city's historic bankruptcy case.

The litigation over the settlement has proven to be one of the most drawn-out and controversial aspects of the city's Chapter 9 case so far. It's also sparked the most opposition from the municipal bond market, where bond insurers and holders of the city's pension certificates are fighting it, arguing it's too favorable to the swap counterparties at other creditors' expense.

The parties were originally set to go to trial on the matter in early September, but it was postponed for months to allow for more mediation. When that failed to produce agreement, a hearing was set for early January.

After a day of testimony, a second day was twice delayed when freezing winter weather closed the courts.
Rhodes heard final arguments and the city's rebuttal Monday, and announced at the end of the hearing that he would issue his decision on Thursday at 2 p.m. Eastern Time.

The city needs the court to approve the swaps settlement in order to close a $285 million debtor-in-possession financing with Barclays that will be used in part for city services. The settlement is also a key part of emergency manager Kevyn Orr's plan of adjustment, which he hopes to file by the end of the month.

The deal calls for Detroit to pay the counterparties, UBS AG and Merrill Lynch Capital services Inc. $165 million plus fees to terminate eight interest-rate swaps that have a current value of around $230 million.

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