Perhaps the third time will be the charm.
Nathan Bomey of the Detroit Free Press reports that the city of Detroit will try a third time to get approval from the bankruptcy court on a new settlement with two banks over the controversial interest rate swaps that helped drive the city into Chapter 9 bankruptcy.
The two previous proposed deals were rejected by U.S. Bankruptcy Judge Steven Rhodes, who concluded that the banks were getting too good of a deal. The new terms have been negotiated with UBS and Bank of America Merrill Lynch. Details are expected to be submitted to the court within three to four days, the Freep reported.
The city hopes the deal will free up more cash so the city can spend more on such things as police, fire and blight removal, the Freep reports.
The Freep reports that original bad-interest rate swap deal was brokered in 2005 by Mayor Kwame Kilpatrick.
The Freep writes:
The transaction, which was brokered by Mayor Kwame Kilpatrick’s administration in 2005, involved interest-rate swaps. The swaps secured a steady interest rate of 6% on $1.4 billion in debt that was used to eliminate Detroit’s unfunded pension liabilities at the time.
But the original deal soured when U.S. interest rates plummeted, meaning the city had to pay the banks, and today the swaps cost about 5% of Detroit’s annual budget.
