DETROIT (WWJ/AP) – A federal judge on Friday approved bankrupt Detroit’s plan to settle a bad multi-million dollar pension debt deal with two banks.
Judge Steven Rhodes signed off on the agreement to pay $85 million to UBS and Bank of America.
“The amount is reasonable and quite fairly compromises the counter-parties’ claims,” the judge said of the deal in which each bank will get $42.5 million secured from casino revenue.
It will be paid off in monthly, $4.2 million installments, Rhodes said during a hearing Friday morning.
Rhodes said the plan decreases the amount Detroit owes to the banks and extends the amount of time the city has to pay what is owed. Plus, it doesn’t need a loan to pay it off, he said.
Rhodes had denied earlier proposals for $220 million and $165 million settlements.
Detroit had pledged casino tax revenue in 2009 as collateral to avoid defaulting on pension debt payments, which allowed the city to get fixed interest rates on pension bonds with the banks. But the deal became too costly when interest rates plunged.
The swaps deal is key to Orr’s plan to restructure Detroit’s debt. The two banks have said they will support Orr’s plan.
Orr has said Detroit’s $18 billion or more debt includes underfunded obligations of about $3.5 billion for pensions and $5.7 billion for retiree health coverage.
Detroit hopes to exit bankruptcy by October, but the city’s plan first faces a series of court hearings in summer. The most divisive issue: cuts to pensions.
The city is proposing a 6 percent cut for retired police officers and firefighters, and a 26 percent cut for other retirees. The difference is tied to the health of the two pension funds.
The size of those cuts assumes that foundations, the state of Michigan and other philanthropists contribute $816 million to help pensioners and prevent the sale of city-owned art. If retirees and city employees reject the cuts, the outside money vanishes and pensions would be slashed even more.
Separately, a group of creditors with eyes on Detroit’s art said it has found buyers willing to pay more than $1 billion for parts or all of the collection. Creditors are asking the judge to order Orr to cooperate with interested parties.
New York-based Art Capital Group said it would arrange $2 billion in loans to Detroit with art at the Detroit Institute of Arts used as collateral. Orr, however, told AP he’s not interested and will stick with a plan to raise money from foundations and the state.
“We’ve committed ourselves to that bargain. No one can compel the city to sell assets,” Orr said.
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