(Recasts with judge's upcoming ruling, details)
DETROIT, April 3 A federal judge overseeing
Detroit's historic bankruptcy case said on Thursday he will rule
April 11 on a proposal to end costly interest-rate swap
agreements, a key issue as the city seeks to exit bankruptcy
later this year.
Judge Steven Rhodes made the announcement after a day-long
hearing that included testimony by Detroit Emergency Manager
Kevyn Orr, who defended a proposed $85 million payment to UBS AG
and Bank of America unit Merrill Lynch Capital
Services to terminate soured swaps that were used to hedge
interest rate risk on Detroit's pension debt.
The money owed to the investment banks helped drive Detroit
to file the biggest municipal bankruptcy in U.S. history in July
2013. A plan to end the swaps at a discount has been a key facet
of Detroit's case since then.
Attorneys for a bond insurer, bondholders and the city's
retired public workers argued against the deal, which marks the
third proposal Detroit has presented to the judge.
Objections to the latest deal noted concerns the two
investment banks would fare better than Detroit's other
creditors and the banks' intention to support Orr's proposed
debt adjustment plan could be used to force the plan on other
The possibility of litigation against the banks was also
raised. Creditors' attorneys questioned the legality of a lien
on casino tax revenues which Detroit granted to the banks in
2009 to stop them from forcing the city to pay as much as $400
million to terminate the swaps.
"The city is asking the court to bless a pledge that's in
direct violation of state law," said Carole Neville, an attorney
for a court-appointed committee representing city retirees.
Orr testified that resolving the swaps was in the best
interest of the city as opposed to the cost of challenging the
swap agreements in court.
"It was significant. It could be millions of dollars a
month," the city's emergency manager said.
But Rhodes rejected as too costly two previous proposed swap
settlements that carried bigger price tags. When he nixed a $165
million proposed deal in January, the judge said Detroit could
succeed with its legal challenges to the validity of the swaps,
noting that the city probably did not have a right under
Michigan law to pledge casino tax revenue as collateral to
secure the swaps.
In his testimony, Orr also said he wants the city to exit
bankruptcy by Oct. 15, which would be just weeks after his
18-month term as state-appointed emergency manager is scheduled
Orr, who started in March 2013, had initially expressed hope
the bankruptcy would speed along. Instead, the case has largely
limped along as scores of city creditors objected to pension
cuts and other critical proposals.
Late on Wednesday, Rhodes issued his third revision of a
schedule to confirm Detroit's plan to deal with its $18 billion
of debt and other obligations. The revision extends some key
filing dates ahead of a trial on the plan that would start on
(Reporting by Cherie Curry in Detroit, aadditional reporting by
Karen Pierog in Chicago; editing by Steve Orlofsky and G Crosse)