CHICAGO — Detroit has not yet finalized a crucial $85 million settlement with its interest-rate swap counterparties, according to the Detroit News.
The city admitted as much in bankruptcy court during a brief hearing Thursday morning, the News reported.
Detroit's attorneys had asked U.S. Bankruptcy Judge Steven Rhodes to approve the settlement, saying it would be finalized by next Wednesday.
"We believe we had an agreement. A term sheet is an agreement," Detroit attorney Robert Hertzberg told the judge, according to reports.
"It's not a term sheet you've asked me to approve, it's an agreement not yet done," Rhodes said.
"I assure the court the settlement agreement will read the same as the motion we filed," Hertzberg said.
"Why wasn't it already done?" asked the judge.
"It's been a struggle, a lengthy negotiation," Hertzberg said.
"If it's been a struggle, how can I accept your assurance that it will be done on any date?" Rhodes asked.
"We are close to finalizing everything," said the lawyer.
Rhodes has already rejected two previous settlements with the swap counterparties.
Syncora Guarantee Inc., which insures the swaps, challenged the latest deal Tuesday, arguing that it's significantly different than the previous two, and therefore requires more than simple court approval.
The main difference, says Syncora, is that the new settlement leaves out of the deal the service corporations that the city set up in 2005 to issue the $1.5 billion of pension certificates of participation. The city in January sued to repudiate the COPs deal, arguing that the service corporations are in fact sham entities.
Detroit says the new deal is key to the city's overall plan of debt adjustment. The deal calls for Detroit to pay the two counterparties, UBS AG and Merrill Lynch Capital Services Inc., $85 million in exchange for access to the casino revenues and the banks' approval of the debt adjustment plan.
The counterparty banks' approval of the plan would give Detroit an impaired accepting class, allowing it to pursue a cramdown for the rest of its creditors if necessary.
