CHICAGO -- Detroit has amended its controversial swaps settlement deal to drop a crucial provision that the counterparties agree to the bankrupt city's plan of debt adjustment.
But the counterparties have still agreed to sign off on the plan.
Detroit filed the
U.S. Bankruptcy Judge Steven Rhodes will hold a hearing on the matter on April 3.
It features a number of tweaks to the deal, which otherwise remains largely the same.
Under the terms, the city will pay $85 million to UBS AG and Merrill Lynch Capital Services Inc.
The city would pay off the banks in a series of quarterly payments, and expects to make the full payment after Oct. 15 -- its expected bankruptcy exit date -- with proceeds of a post-petition financing.
The swaps would not be terminated and the rights of the banks would remain place until the full payment is made.
The original deal required the banks to sign off on the city's plan of debt adjustment. The approval from one impaired accepting creditor would theoretically give the city the power to impose a cramdown on the rest of its creditors.
Rhodes has rejected two previous swaps settlements as too costly for the city. Some observers had said it was unlikely the judge would approve a deal that would allow the city to follow through with a cramdown.
The new deal strikes that provision, and makes the settlement independently effective without the plan.
But documents attached to the supplement make it clear that the banks still plan to support the plan.
A section titled "plan support" is among the top conditions for the settlement. As long as the final debt plan treats the banks as the city has promised in the settlement, then the banks will not object to the plan,
The swaps hedge roughly $800 million of $1.4 billion of pension certificates of participation that the city is separately trying to repudiate as illegal.
The city values the swaps at $288 million. The $85 million would be divided equally among the two banks.
In related news, Detroit said it plans to file a new debt plan and disclosure statement on Monday. The city said it expects the updated statement will address many creditor complaints of insufficient information and will feature updated agreements as a result of ongoing negotiations.
In light of the new bankruptcy plan, the city asked Rhodes to extend by two days the deadline for creditors to object to the disclosure statement and the city to respond to those objections.
The two-day extension will give creditors more time to review the amended plan and revise their own objections as well as "confer with the city regarding remaining disputes, all with the goal of substantially paring down the number of objections that are filed with, and therefore must be resolved by, the court."
Rhodes granted the request. Creditors now have until April 3 to file objections and the city has until April 10 to respond to the challenges. The city wants to begin soliciting creditor votes on the plan on April 14.
