March 27 Detroit dropped a key requirement in its latest version of an agreement on costly interest rate swaps with two investment banks, which was filed in court late Wednesday.
Under the agreement, UBS AG and Merrill Lynch Capital Services, a unit of Bank of America Corp. would no longer have to support the financially hobbled city's plan to restructure its debts.
Other creditors had said they could be subject to a "cram down" if the banks officially approved the plan. Under Chapter 9 of the federal bankruptcy code, once a city wins agreement from a single class of creditors whose interests are impaired by bankruptcy it can then impose settlement terms on other classes of creditors.
In the agreement, though, the banks state they will not object to a debt-adjustment plan.
On Monday, Detroit will submit to the bankruptcy court an amended adjustment plan, along with a revised disclosure statement that responds to various "informal requests for the inclusion of additional information," the city said in a filing on Thursday.
Bankruptcy Court Judge Steven Rhodes has scheduled a hearing for April 4 on the plan and its treatment of retirees.
The city's emergency manager, Kevyn Orr, is seeking to wind down the expensive interest rate swaps used to hedge pension debt. Under the agreement, the city would pay the banks $42.5 million each to settle swaps estimated at around $285 million.
Rhodes has rejected previous proposals from the city and banks to end the swaps as too expensive for the city.
Detroit filed for bankruptcy protection last July, the largest municipal filing in U.S. history. (Reporting by Lisa Lambert; Additional reporting by Karen Pierog in Chicago; Editing by Leslie Adler)