DETROIT, Dec 24 (Reuters) - The city of Detroit reached an agreement Tuesday with two banks to end a costly interest-rate swap agreement, a significant step as the city negotiates with creditors to put together a plan to exit bankruptcy.
The terms of the agreement were not immediately released, but the details were announced on Tuesday to U.S. District Judge Gerald Rosen, the chief mediator in the bankruptcy case, a court statement said. The deal must still be approved by the U.S. bankruptcy judge overseeing the case, Steven Rhodes.
The deal was reached after two days of mediation this week led by Rosen.
Detroit had initially secured a $350 million loan from Barclays PLC, of which about $230 million would be used to end the swap agreements with UBS AG and Bank of America Corp’s Merrill Lynch Capital Services at 75 cents on the dollar. The remainder of the cash was slated to be used to improve services in the city, which is hampered by $18.5 billion in debt and the largest municipal bankruptcy in U.S. history.
The swaps had been intended to hedge interest rate risk for a portion of $1.4 billion of pension debt Detroit sold in 2005 and 2006.
A spokesman for Bank of America declined comment. UBS could not be reached immediately for comment.
Rhodes last week encouraged Detroit to negotiate better terms with the banks after he halted a hearing at which the city was seeking approval of the deal.
“We are very pleased and hope that this is a change that Judge Rhodes is happy with,” Detroit attorney David Heiman, of the law firm Jones Day, said on Tuesday outside the federal courthouse in Detroit, the Detroit News reported.
A spokesman for Detroit’s emergency manager, Kevyn Orr, did not immediately respond to a request for comment.