Detroit May Sue Banks to Get Better Debt Deal
Over controversial credit swap meant to deal with pension problems
The city of Detroit threatened to sue Bank of America and UBS if the banks don't agree to a better settlement over a disastrous 2005 debt deal that helped plunge the city into Chapter 9 bankruptcy.
Jones Day lawyer Thomas Cullen told Judge Steven Rhodes Friday that the city has already notified the banks that it may sue if the banks don't agree to settlement terms that are more favorable to the city.
"We are doing whatever is necessary to protect the city, its residents and its interests," Cullen said.
Rhodes convened a hearing Friday to get a progress report on the city's attempts to negotiate a new settlement on a complex pension debt interest-rate transaction called "swaps," which cost the city about $50 million per year, or 5% of its revenue.
The city had previously proposed to pay 75 cents on the dollar to 82 cents on the dollar to UBS and Bank of America to get rid of the swaps, which would amount to about $230 million today. The money would come from a fresh round of $350 million in financing from London-based Barclays.