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 If the city cannot reach an agreement over costly interest-rate swap
deals with banks and objecting parties, attorney Thomas Cullen of
law firm Jones Day said, Detroit would retain its rights to litigate
an end to the swaps.
"In the interim, we are doing whatever is necessary to protect the
city, its residents and its interests and preserve the city's
ability to take whatever course of action it deems necessary,"
Cullen told U.S. Bankruptcy Court Judge Steven Rhodes, who is
overseeing the historic case Detroit filed in July.
Rhodes on Wednesday postponed the remainder of a three-day hearing
on the swaps and a plan to finance their termination that started
Tuesday. He urged the parties to renegotiate the agreement.
The original deal had Detroit securing a $350 million loan from
Barclays PLC <BARC.N>, of which about $230 million would be used to
end the expensive interest rate swap agreements with UBS AG <UBSN.VX>
and Bank of America Corp.'s Merrill Lynch Capital Services <BAC.N>
at a 25 percent discount. The remainder of the money would be
earmarked to improve services in the cash-strapped city.
The swaps deal drew objections from numerous city creditors,
including its pension funds, which face debt recovery of just
pennies on the dollar. Some objectors raised questions about the
legality of the swaps themselves, which were used to hedge interest
rate risk for a portion of $1.4 billion of pension debt Detroit sold
in 2005 and 2006.
The parties will continue discussions next week as U.S. District
Judge Gerald Rosen, the chief mediator in the case, ordered
mediation sessions on Monday and Tuesday, insisting that they occur
even on Christmas Eve.
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If an agreement is reached, the city's attorneys said they will
submit the revised deal to the court by Friday, December 27. Detroit
Emergency Manager Kevyn Orr would then be deposed on December 31 by
the parties that still object to the deal. The hearing to consider
the agreement would recommence on January 3, with the possibility
that it would continue to Saturday, January 4.
Meanwhile, Michigan officials voted Friday afternoon to approve up
to $350 million in financing with Barclays despite the court delays.
The Local Emergency Financial Assistance Loan Board acknowledged
that negotiations were ongoing, and though it has approved a deal,
the final arrangement still must be approved by Rhodes.
(Reporting by Joseph Lichterman in
Detroit and Karen Pierog in Chicago; editing by Dan Grebler)
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