Detroit reaches deal $85M debt swaps settlement with banks

**Vic01** · March-04-14, 12:23 AM

"The city agreed to pay the banks $85 million to eliminate a disastrous pension debt interest-rate bet brokered by Mayor Kwame Kilpatrick’s administration in 2005. As part of the settlement, the banks have agreed to support Detroit emergency manager Kevyn Orr’s bankruptcy restructuring plan in court.

The new settlement allows Detroit to escape a $286-million debt by paying 30 cents on the dollar. The city will save about $201 million, more than its annual Fire Department budget, for example.
U.S. Bankruptcy Judge Steven Rhodes, who must sign off for the settlement to take effect, rejected the city’s previous offers to pay off the swaps for $230 million and then $165 million. He questioned the legality of the original transaction, saying $165 million was “just too much money” and chiding the city for making hasty financial decisions.
“Assuming he likes this number, he saved the city of Detroit a great deal of money,” Wayne State University bankruptcy law professor Laura Beth Bartell said Monday night".

http://www.freep.com/article/2014030...ank-of-America

Of course "someone" will object to this deal, as usual...

**313WX** · March-04-14, 12:59 AM

If the swap deal was illegal, the city of Detroit probably could have gotten out of it entirely.

Too bad the main objective right now is rushing the city out of bankruptcy court before Orr's supposed "departure" in September.

**Honky Tonk** · March-04-14, 01:22 AM

Originally Posted by 313WX

If the swap deal was illegal, the city of Detroit probably could have gotten out of it entirely.

Too bad the main objective right now is rushing the city out of bankruptcy court before Orr's supposed "departure" in September.

What's too bad is that the City government sat on it's ass and did nothing to address the problem except to keep cutting services and giving themselves big raises and more assistants. Chauffer anyone?

**Wesley Mouch** · March-04-14, 02:04 AM

Originally Posted by 313WX

If the swap deal was illegal, the city of Detroit probably could have gotten out of it entirely.
....

Not probably -- but possibly.

If, probably, maybe.

A bankruptcy judge is going to decide the right thing here. So all your speculation is irrelevant.

**detroitbob** · March-04-14, 02:09 AM

This is a great deal and more such announcements are supposed to be forthcoming.

**corktownyuppie** · March-04-14, 04:56 AM

Originally Posted by 313WX

If the swap deal was illegal, the city of Detroit probably could have gotten out of it entirely.

Too bad the main objective right now is rushing the city out of bankruptcy court before Orr's supposed "departure" in September.

I'll be the first to say that I have no idea what a fair settlement would be, as. I do not know the merits of the case on both sides. Arguably, even the parties at the table don't really know what a fair settlement would be, since this is their third go at it.

What I do know is that any opinion stating that we should try to get out of the deal entirely [[recognizing that you are not stating that to be your firm position) must also include the cost/benefit analysis of time and money invested.

Theres someone on the freep.com comment board staying that the deal is still too fat for the banks, and that $70MM would be fair. Ok...even if I agreed with the methodology of his concluding amount, the question is when? Is it worth saving $15MM if it means tying up casino revenue for 1 year? 2 years? 3 years?

Even a husband and wife can disagree on whether to take the $120,000 offer on the the $135,000 house.

There are two elements that I fear are missing from the public dialogue here:

1) There are still many people who misunderstand bankruptcy altogether....they don't realize that the primary purpose is to shed debt and use the money saved for badly needed operational expenses and capital improvements. [[Obvs, I don't think you're one of them.)
I do think that a lot of people are caught up in the banks vs people ideological war that is leading people to miss the forest through the trees. Taking this to court and winning may be a philosophical one, but does it result in what's needed most for the city's survival? I don't know, and no one has yet to pose the questions and analysis in that way.

2) For the citizens [[in contrast to employees or creditors) the bigger of the two enemies is not money but time. The judge, IMHO, is smart to threaten the hammer toward a negotiated solution rather than a bench-issued ruling that is subject to years and years of appeal...which could kill the city financially even worse than it already is.

The beauty of the EM is that you have a sole individual who has the authority to negotiate on behalf of the city. You lose the EM, and now we are just making it harder to come to an accord. Certainly, the Governor could appoint another EM but still...changing negotiators in the middle of the negotiation is risky.

At the end of the day, it's normal for many people to distrust Orr. Though, personally I'm happy with the job he has done so far. The argument that he was appointed by the governor [[who people distrust) does not win with me...after seeing him I'm action, I'm convinced that even he and Snyder disagree sometimes and that Snyder has little choice at this point but to let Orr get to work. Orr isn't working toward a job extension or to try to be next in line for governor. And Snyder has his hands ties...what is he going to do, replace Orr this late in the game? Impossible.

But Even putting that aside, if you don't trust Orr, certainly I can't see how anyone in Detroit can have issue with the way Rhodes has conducted himself. Certainly there are points of law which can be argued, though he has certainly done some serious heavy lifting to make sure his ruling is appellate proof.

If Rhodes oks the deal, I'm ok with it.

**Honky Tonk** · March-04-14, 08:33 AM

Originally Posted by corktownyuppie

I'll be the first to say that I have no idea what a fair settlement would be, as. I do not know the merits of the case on both sides. Arguably, even the parties at the table don't really know what a fair settlement would be, since this is their third go at it.

What I do know is that any opinion stating that we should try to get out of the deal entirely [[recognizing that you are not stating that to be your firm position) must also include the cost/benefit analysis of time and money invested.

Theres someone on the freep.com comment board staying that the deal is still too fat for the banks, and that $70MM would be fair. Ok...even if I agreed with the methodology of his concluding amount, the question is when? Is it worth saving $15MM if it means tying up casino revenue for 1 year? 2 years? 3 years?

Even a husband and wife can disagree on whether to take the $120,000 offer on the the $135,000 house.

There are two elements that I fear are missing from the public dialogue here:

1) There are still many people who misunderstand bankruptcy altogether....they don't realize that the primary purpose is to shed debt and use the money saved for badly needed operational expenses and capital improvements. [[Obvs, I don't think you're one of them.)
I do think that a lot of people are caught up in the banks vs people ideological war that is leading people to miss the forest through the trees. Taking this to court and winning may be a philosophical one, but does it result in what's needed most for the city's survival? I don't know, and no one has yet to pose the questions and analysis in that way.

2) For the citizens [[in contrast to employees or creditors) the bigger of the two enemies is not money but time. The judge, IMHO, is smart to threaten the hammer toward a negotiated solution rather than a bench-issued ruling that is subject to years and years of appeal...which could kill the city financially even worse than it already is.

The beauty of the EM is that you have a sole individual who has the authority to negotiate on behalf of the city. You lose the EM, and now we are just making it harder to come to an accord. Certainly, the Governor could appoint another EM but still...changing negotiators in the middle of the negotiation is risky.

At the end of the day, it's normal for many people to distrust Orr. Though, personally I'm happy with the job he has done so far. The argument that he was appointed by the governor [[who people distrust) does not win with me...after seeing him I'm action, I'm convinced that even he and Snyder disagree sometimes and that Snyder has little choice at this point but to let Orr get to work. Orr isn't working toward a job extension or to try to be next in line for governor. And Snyder has his hands ties...what is he going to do, replace Orr this late in the game? Impossible.

But Even putting that aside, if you don't trust Orr, certainly I can't see how anyone in Detroit can have issue with the way Rhodes has conducted himself. Certainly there are points of law which can be argued, though he has certainly done some serious heavy lifting to make sure his ruling is appellate proof.

If Rhodes oks the deal, I'm ok with it.

Well put, and I agree. I'd like to add I don't think people realize how complicated these negotiations are. People are saying "Orr is for the banks, he almost gave it away for $230 mil". Did he? Or did he know the original offer would be rejected? This is a very complicated game being played. Like tri-level chess. You have so many facets to this. You need to keep them all shiny and happy, and still have the City come out smelling like a rose.

**renf** · March-04-14, 08:34 AM

Corktownyuppie,
Your comments today make sense.

**Gistok** · March-04-14, 09:03 AM

Agreed, Corktownyuppie... sounds like sense to me also....

**Danny** · March-04-14, 09:09 AM

Judge Rhodes on the Detroit's 85 million dollars payment deal with the banks.

That's more like it. I will approve this deal.

**Honky Tonk** · March-04-14, 09:15 AM

Originally Posted by Danny

Judge Rhodes on the Detroit's 85 million dollars payment deal with the banks.

That's more like it. I will approve this deal.

Great! I'll get Kevyn Orr on the phone.

**coracle** · March-04-14, 11:16 AM

For all we know "somebody" may have "paid" the banks to accept the $85 million or less to put the pressure on the other creditors.

**coracle** · March-04-14, 11:17 AM

For all we know "somebody" may have already "paid" the banks to accept the $85 million or less to put the pressure on the other creditors to settle by September.

**BankruptcyGuy** · March-04-14, 11:45 AM

I think people [[including our friends in the media) have a fundamental confusion:

1. There is no argument that the swap transaction was legal. There is an argument that the CoP deals were illegal. The state limits the amount of debt cities can have, so the City created service corporations that received tax payments, and called the debt owed by the service corporations. Arguably, those transactions violate the prohibition on additional debt. But the CoPs and the swaps [[which fixed the interest rates on the CoPs) are not the same thing. They are not even with the same parties.

2. There is a principal in law that if a consummated transaction is void, that rules of equity require that both parties be returned to the positions they held prior to the transaction [[status quo ante). If that's the case with the CoPs, the principal would have to be returned to the lenders. I think it's something like $1.4B. I hope we can now all see why Orr and the City did not sue on this transaction.

**DetroitPlanner** · March-04-14, 01:04 PM

Originally Posted by 313WX

If the swap deal was illegal, the city of Detroit probably could have gotten out of it entirely.

Too bad the main objective right now is rushing the city out of bankruptcy court before Orr's supposed "departure" in September.

If it was an illegal deal then how come the City's law department did not bring it up prior to the exchange. It takes two to tango.

**professorscott** · March-04-14, 03:57 PM

Originally Posted by DetroitPlanner

If it was an illegal deal then how come the City's law department did not bring it up prior to the exchange. It takes two to tango.

Well, first of all, it's not been determined whether the deal was illegal or not. Just the question of its legality has now been raised, that's all. At the time, I don't remember reading anywhere that anyone questioned its legality. Second, the City was in a desperate situation with regard to cash flow and finances in general when it made the deal, and desperate people often make bad and sketchy deals.

**DetroitPlanner** · March-04-14, 04:21 PM

Originally Posted by professorscott

Well, first of all, it's not been determined whether the deal was illegal or not. Just the question of its legality has now been raised, that's all. At the time, I don't remember reading anywhere that anyone questioned its legality. Second, the City was in a desperate situation with regard to cash flow and finances in general when it made the deal, and desperate people often make bad and sketchy deals.

That is why I started with IF. I see this as a poor deal given to an administration looking to get a win. The fact that two banks were willing to cave should be seen as an admission of guilt. The fact that the administration was so willing to do such a poor deal also speaks volumes.

**Honky Tonk** · March-04-14, 05:48 PM

What kind of Administration makes a loanshark type deal with the City's Pension Fund? Blame the BBB, [[big bad banks) all you want, as someone posted earlier, it takes two to tango.

**ABetterDetroit** · March-04-14, 06:24 PM

With all due respect to Mr.Orr any kind of comparison to his power vs. a federal judge is not even close. Kevyn is a appointed manager whereas a federal judge is a ultimate authority and if anyone doesn't like his decisions it will cost a shit load of cash to appeal with unknown results and a long time duration. A fact of life in this country, bitch all you want it doesn't go far in federal courts without deep pockets. In that environment even big banks know when to smile and nod and cut losses when the judge gives his opinion.

**professorscott** · March-04-14, 06:25 PM

Originally Posted by DetroitPlanner

That is why I started with IF. I see this as a poor deal given to an administration looking to get a win. The fact that two banks were willing to cave should be seen as an admission of guilt. The fact that the administration was so willing to do such a poor deal also speaks volumes.

I agree with your last sentence but I think the banks are in an unenviable position now, and I don't think caving [[the first time) was an admission of guilt so much as it was trying to get the best possible outcome under the new circumstances. And now, of course, they are caving because Hon. Mr. Rhodes has caved them.

There's going to be a lot more caving going on, and among people who are certainly guiltless, such as pensioners. Nobody is going to come out of this unscathed.