CHICAGO — Michigan officials Friday were negotiating with Bank of America Merrill Lynch to push back the due date on $80 million of debt to buy more time to solve a paralyzing dispute with Detroit’s top attorney.

Winning an extension on the bonds would mean that a $28.5 million state aid payment could go to the cash-strapped city as scheduled instead of being used by the bond trustee to begin to pay off the privately placed debt, state officials said.

“We are currently working with the bondholder to extend the payment date, which would allow the trustee to forward the revenue sharing to the city,” Michigan treasury spokesman Terry Stanton said in an email.

The interest rate on the debt rose to 6.25% from 2.97% after the June 27 mandatory tender date, according to the original terms of the private placement.

Detroit pays the debt on the bonds, which are backed by the state aid payments.

The Michigan Finance Authority privately placed the notes with Bank of America Merrill Lynch in late March to generate cash for Detroit and to push off an upcoming debt payment.

Officials at the time planned to have the authority take out the debt with a $137 million bond financing before June 27.

But since the borrowing, Detroit Corporation Counsel Krystal Crittendon filed a lawsuit challenging the newly inked consent decree with the state aimed at stabilizing the city’s fiscal situation.

State officials warned the challenge would derail the planned $137 million bond deal and force the state to withhold all the city’s revenue aid through December in order to pay off the $80 million private placement with BofA Merrill.

An Ingham County Circuit Court judge dismissed Crittendon’s challenge two weeks ago, a move that seemed to resolve the problem.

But late this week the dispute flared anew. Crittendon’s office on Thursday indicated it would appeal the decision. At the same time, the top attorney has refused to sign off on bond documents allowing the $137 million deal, according to state officials.

“Without the Corporation Counsel’s opinion on the bond deal and some assurance that the city will not offer a legal challenge to the financial stability agreement going forward, it will be very difficult to do the take-out financing,” Stanton said. “I want to be clear that the state is not threatening to withhold the revenue sharing payment,” he added. “The payment goes to the trustee, which has a legal obligation to ensure that the city’s bond obligations are paid before any revenue sharing is sent to the city.”

The city had been expecting the revenue payment on July 9, according to Naomi Patton, a spokesman for Mayor Dave Bing.

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