Detroit retirees drop objection to interest-rate swap deal

Reuters

By Joseph Lichterman

DETROIT, Nov 26 (Reuters) - The committee representingDetroit's retirees in bankruptcy proceedings on Tuesday withdrewits objection to a deal Detroit reached to end someinterest-rate swap agreements.

The Official Committee of Retirees dropped its objection sothe group, which represents about 23,500 retired city workers,could focus on negotiations on other issues with the city, aperson familiar with the retiree committee's thinking said.

The agreement that Detroit's emergency manager, Kevyn Orr,signed with swaps dealers Merrill Lynch CapitalServices and UBS AG would end theinterest-rate swap agreements at a discount rate of as much as25 percent. In exchange, Detroit would save more than $70million and the city would be able to stop making monthlypayments from casino tax revenue to the counterparties.

The city so far is offering retirees and other creditors farless than it has offered the swap counter parties. The retireecommittee withdrew its claim knowing that Merrill and UBS couldget a richer payout than retirees and other creditors, thesource said.

"There's a certain reality of that to deal with," the sourcesaid.

An attorney representing the retiree committee would notcomment on the decision.

Detroit and other parties involved in the bankruptcy case,including the retiree committee, have been involved in mediationsince September to try to resolve some of the issues in the caseoutside of court.

The committee and the city reached an agreement earlier thismonth to extend current retiree healthcare benefits through theend of February 2014 after the retirees withdrew a lawsuitchallenging the plan.

The city plans to offer retirees under age 65 a monthlystipend to purchase insurance on exchanges established under theAffordable Care Act, while retirees over age 65 would be coveredby Medicare. The changes were initially expected to take placeon Jan. 1, 2014.

Detroit, which filed for bankruptcy on July 18, has $18.5billion in debt and liabilities, including $5.7 billion inretiree healthcare liabilities.

Detroit in October reached a $350 milliondebtor-in-possession loan agreement with Barclay's Plc. About$230 million of the proceeds of the deal would be paid to endthe interest-rate swaps.

The interest-rate swaps were intended to help the city makepayments into its two pension funds.

Although the retiree committee dropped its objection to theswaps deal, the bond insurers and unions that also have opposedthe deal continue their opposition in court. The deal ultimatelymust be approved by U.S. Bankruptcy Judge Steven Rhodes, who isoverseeing the Detroit bankruptcy.

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