Traverse City Record-Eagle

Michigan

January 17, 2014

Bankruptcy judge rejects deal with banks

DETROIT (AP) — A judge overseeing Detroit’s bankruptcy again rejected a deal Thursday to end a crippling financial agreement with major banks, dealing a blow to officials who want to put the issue behind them as they work on a broader plan to get the city out of Chapter 9 in the largest public filing in U.S. history.

Judge Steven Rhodes turned down a $169 million compromise, saying “it’s just too much money.” He had rejected a $230 million deal on the same grounds in December.

Meanwhile, in Lansing, Gov. Rick Snyder met with state lawmakers to discuss the possibility of putting money aside to shore up Detroit’s pension plans and prevent the sale of city-owned art, days after foundations committed $330 million to the effort.

In 2009, Detroit pledged a critical revenue source, casino taxes, as collateral to avoid defaulting on pension debt payments. The city locked itself into high interest rates on bonds with UBS and Bank of America, but the deal became extremely costly when interest rates plunged during the recession. Rhodes called it “disastrous.”

Nonetheless, the judge turned thumbs down on the latest deal to unwind the transaction. He didn’t offer his own number, at least not publicly, but encouraged all sides to keep talking. He then cleared the courtroom to meet privately with lawyers.

“It’s higher than the highest reasonable number. ... By any rational analysis, it’s not close,” Rhodes said moments earlier.

Detroit had lined up a loan to pay for the settlement. Emergency manager Kevyn Orr wants to get the “swaps deal,” as it’s known, out of the way so he can focus on proposing a sweeping plan to deal with the city’s long-term debt of $18 billion.

Orr didn’t offer much reaction to Rhodes’ decision, although he was grateful to get the judge’s OK for a $120 million loan for city services.

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