I wondered why Kevyn Orr agreed to pay UBS and Bank of American 75% of what they were owed in those transactions made by Mayor Kilpatrick to fund pensions about eight years ago. Monday’s New York Times had a long essay contending that Congress enacted legislation providing safe harbor in bankruptcy proceedings to many derivatives and other complex financial instruments. If the federal law required 100% payment, Orr cut a good deal with 75%. Yesterday’s paper reported that those two banks have agreed to accept just 43% of what they are owed.
I do not understand what is going on here. If federal law provides a safe haven for derivatives and swaps in Chapter 11 bankruptcy, why would the banks accept just 43% of what they are owed? What is their motivation? It is a good deal for the city. Can anyone explain what municipal debts have been given safe harbor by Congress?