DETROIT Dec 18 A lawyer for Detroit said in
U.S. Bankruptcy Court on Wednesday that the city might still
pursue litigation over its interest-rate swap agreements, even
though the city has maintained that the swap counterparties are
Attorney Thomas Cullen of law firm Jones Day made the
statement to defend the city's decision to claim attorney-client
privilege over internal memos discussing the legality of the
swaps. The city used the swaps contracts to hedge interest rate
risk on some of the $1.4 billion of pension debt that Detroit
sold in 2005 and 2006.
U.S. Bankruptcy Judge Steven Rhodes, who is overseeing
Detroit's historic bankruptcy case, pushed the city attorneys
for information about the swaps deal. He said the information
would be revealed during the litigation process if the city were
to sue the swap counterparties.
"How can I decide whether this was a fair settlement without
understanding what the city's assessment of the strength of its
claims against the swaps and the COPs were?" asked Rhodes. "It's
all going to come out."
COPs, or certificates of participation, are related to the
city's pension debt.
Earlier in the hearing, Rhodes said "probably the most
significant question in this trial" was what arguments Detroit
was using to negotiate a termination of the costly interest-rate
Bond insurers that covered the swaps and payments on the
pension debt, holders of the debt, Detroit pension funds and
others objecting to the deal have argued it gives an unfair
advantage to the counterparties over other creditors.
But the city has defended the move as a way to protect
casino tax revenue used as collateral for the swaps, money it
views as the Detroit's most reliable source of revenue.
Detroit Emergency Manager Kevyn Orr took the witness stand
on Wednesday, the second day of a hearing over whether the court
should approve $350 million in post-petition financing. Detroit
intends to use a portion of the loan to satisfy a deal with swap
counterparties UBS AG and Bank of America Corp's
Merrill Lynch Capital Services to end the swap contracts
at a lower cost to the city.
"Casino revenue is the single most stable revenue available
to the city," Orr said on Wednesday. "Without it, the city could
And on Monday, the city's lead restructuring adviser,
Kenneth Buckfire of Miller Buckfire, said litigation "was not a
risk worth taking" because the issue could take years to
"At that time the city would be dead," Buckfire said in
In an Aug. 30 deposition related to the swaps deals, Orr
repeatedly dodged questions lobbed by lawyers on whether the
city would ever sue the counterparties.
The deal to end the swaps has emerged as a major component
in Detroit's July 18 bankruptcy filing.
Wednesday's hearing is occurring as Detroit Mayor-Elect Mike
Duggan and Orr have reached an agreement to share power, the
Detroit News reported.