Swaps ruling winners: Retirees, residents, pension funds, bondholders. Losers: Kevyn Orr, Jones Day, Gerald Rosen, UBS, Bank of America.
— Nathan Bomey (@NathanBomey) January 16, 2014
In a stunning decision, bankruptcy judge Steven Rhodes refused to approve a $165 million settlement proposed by Detroit emergency manager Kevyn Orr to pay off Bank of America/Merrill Lynch and UBS for dubious interest rate swaps. Orr’s swap proposal has been contentious since Detroit formally filed for bankruptcy on July 18th, 2013. The Detroit News reported:
U.S. Bankruptcy Judge Steven Rhodes on Thursday denied a deal that would have allowed Detroit to pay two banks $165 million to terminate a troubled pension debt deal blamed for pushing the city into bankruptcy.
Rhodes ruled the settlement was too expensive and that Detroit was ‘reasonably likely’ to win a lawsuit against two banks involved in the pension debt deal.
In sharp terms, the judge said he will not let Detroit continue to make bad financial decisions, the likes of which triggered the biggest municipal bankruptcy in U.S. history. ‘The court … will not participate or perpetuate hasty and imprudent financial decision-making,’ Rhodes said. ‘It’s just too much money.’