Whether you’re a company, a city, or a regular person, bankruptcy court is where you go when you’re out of options. So your choices range from bad, to worse, to what will let you make it through.
Stephen Henderson and Nancy Kaffer of the Free Press editorial page analyze the city council's attempt to make a deal to settle a disastrous Detroit credit swap from 2005 — a $350-million loan from Barclays would have paid off the swaps, given the city access to capital for operational improvements (new computer systems, for example), all at a much lower interest rate, 3.5% compared with the 6.3% Detroit is now paying. Settling the swaps would also free up $11 million a month in casino revenues that are tied up paying the debt.
The Detroit City Council voted down the deal and says it’s considering an alternate proposal from an unnamed bank. More likely, the state’s emergency loan board, stacked with appointees of Gov. Rick Snyder, will approve the Barclays deal.
But while there are several key advantages to wiping away the swaps, and to doing so in the way Orr proposes, it’s more important that the city just needs the money. In bankruptcy, sometimes you do what you have to because it’s the only thing you can do.
Detroit City Council said no to the deal Monday, calling it too risky and too favorable to the banks. We’re sure the banks would disagree, and the council’s objections seem rooted in a shallow read of the deal.
