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Detroit to Big Banks: $165 Million is Too Expensive to Exit Swaps View Count: 102
Judge Steven Rhodes refused a deal to settle Detroit’s swap-exit between the city and big banks UBS/BOA. Judge Rhodes noted that the settlement to exit the interest-rate swap contracts actually costed taxpayers $202 million- and the deal to exit was priced at $165. According to Bloomberg, the bankruptcy judge said “the settlement payment was priced too high” and that “the court will not let the city continue hasty decisions.”
700,000 residents rely on financing for the city’s debts and to continue what is called “quality-of-life financing.” Ultimately Detroit’s pension bonds and muni that are in the mix. Adding to the complexity of the situation, the city is trying to exit their contracts for interest rate swaps, and are trying to finance the settlement with apparent MUNI backed loans. The casinos have been pledged as collateral. I can’t say that this situation is transparent, but I do see the ultimate desperation in it; sadly, the pensioners and the general public are the people that will likely suffer and are waiting in the balance to have their economic mobility trickle down to them.
To clarify, “the swaps are tied to pension obligation bonds, designed to protect against rising interest rates.” While Detroit filed for municipal bankruptcy, it settled to exit their interest-rate-swaps contracts.
Bloomberg notes that “Detroit filed a record $18 billion municipal bankruptcy in July, saying decades of economic decline had left it without enough money to pay creditors and still provide basic services.”
I believe that the city can definitely negotiate harder as they have the leverage. Judge Rhodes is taking a hard stance against the big banks, and he makes a valid point in forcing the city to negotiate better terms- for its constituents, its businesses, and its people. For jobs in Detroit, click here.
Image Credit: MyOpera.comDetroit to Big Banks: $165 Million is Too Expensive to Exit Swaps by Jaan
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