Following two days of intense negotiations with a federal mediator, the city of Detroit and two banks reached an agreement for terminating a pension debt saving the city $65 million more than previously planned.
The settlement, which must still be approved by federal bankruptcy Judge Steven Rhodes, would remove a major hurdle to Detroit’s continued restructuring and turnaround efforts.
The deal on the pension funding instruments will free up the city’s casino revenue to be used on rebuilding and improving basic services for its 700,000 residents and it closes the chapter on a financial deal that helped drive the city to insolvency.
“This is an important development for the city and its residents because it means we can start moving forward on implementing needed investments in public safety and services,” says emergency manager Kevyn Orr, who helped negotiate the deal. “This agreement represents a significant reduction from the original deal struck with the banks.”
Initially, the banks — Bank of America Merrill Lynch and UBS — had agreed to terminate the city’s debt on the pension deals for $230 million, which represented approximately a 25-percent reduction from the $293 million the city owed on the secured debt. Under the new deal, the banks will receive $165 million from Detroit.
To pay the banks, the city has secured $350 million in post-petition financing loan through Barclays. As a result of the mediation deal, the city has agreed to lower the post-petition financing loan to $285 million: $165 million to the termination amount to the banks and $120 million cash to the city to fund immediate improvements to basic city services.
The termination agreement and the revised post-petition financing loan must be approved by Judge Rhodes at a hearing scheduled for Jan. 3.