DETROIT The committee representing Detroit's retirees in bankruptcy proceedings on Tuesday withdrew its objection to a deal Detroit reached to end some interest-rate swap agreements.
The Official Committee of Retirees dropped its objection so the group, which represents about 23,500 retired city workers, could focus on negotiations on other issues with the city, a person familiar with the retiree committee's thinking said.
The agreement that Detroit's emergency manager, Kevyn Orr, signed with swaps dealers Merrill Lynch Capital Services and UBS AG would end the interest-rate swap agreements at a discount rate of as much as 25 percent. In exchange, Detroit would save more than $70 million and the city would be able to stop making monthly payments from casino tax revenue to the counterparties.
The city so far is offering retirees and other creditors far less than it has offered the swap counter parties. The retiree committee withdrew its claim knowing that Merrill and UBS could get a richer payout than retirees and other creditors, the source said.
"There's a certain reality of that to deal with," the source said.
An attorney representing the retiree committee would not comment on the decision.
Detroit and other parties involved in the bankruptcy case, including the retiree committee, have been involved in mediation since September to try to resolve some of the issues in the case outside of court.
The committee and the city reached an agreement earlier this month to extend current retiree healthcare benefits through the end of February 2014 after the retirees withdrew a lawsuit challenging the plan.
The city plans to offer retirees under age 65 a monthly stipend to purchase insurance on exchanges established under the Affordable Care Act, while retirees over age 65 would be covered by Medicare. The changes were initially expected to take place on January 1, 2014.
Detroit, which filed for bankruptcy on July 18, has $18.5 billion in debt and liabilities, including $5.7 billion in retiree healthcare liabilities.
Detroit in October reached a $350 million debtor-in-possession loan agreement with Barclay's Plc. About $230 million of the proceeds of the deal would be paid to end the interest-rate swaps.
The interest-rate swaps were intended to help the city make payments into its two pension funds.
Although the retiree committee dropped its objection to the swaps deal, the bond insurers and unions that also have opposed the deal continue their opposition in court. The deal ultimately must be approved by U.S. Bankruptcy Judge Steven Rhodes, who is overseeing the Detroit bankruptcy.
(Reporting by Joseph Lichterman. Editing by Andre Grenon)