A key component in Detroit's plan to exit bankruptcy will either be renegotiated over the next week or possibly face litigation, an attorney for the city told a federal judge on Friday, Reuters reported. If the city cannot reach an agreement over costly interest-rate swap deals with banks and objecting parties, attorney Thomas Cullen of law firm Jones Day said, Detroit would retain its rights to litigate an end to the swaps. Bankruptcy Judge Steven Rhodes on Wednesday postponed the remainder of a three-day hearing on the swaps and a plan to finance their termination that started on Tuesday. He urged the parties to renegotiate the agreement. The original deal had Detroit securing a $350 million loan from Barclays PLC BARC.N, of which about $230 million would be used to end the expensive interest rate swap agreements with UBS AG and Bank of America Corp.'s Merrill Lynch Capital Services at a 25 percent discount. The remainder of the money would be earmarked to improve services in the cash-strapped city. The swaps deal drew objections from numerous city creditors, including its pension funds, which face debt recovery of just pennies on the dollar. Some objectors raised questions about the legality of the swaps themselves, which were used to hedge interest rate risk for a portion of $1.4 billion of pension debt Detroit sold in 2005 and 2006. The parties will continue discussions next week as U.S. District Judge Gerald Rosen, the chief mediator in the case, ordered mediation sessions on Monday and Tuesday, insisting that they occur even on Christmas Eve. If an agreement is reached, the city's attorneys said they will submit the revised deal to the court by Friday, December 27. Detroit Emergency Manager Kevyn Orr would then be deposed on December 31 by the parties that still object to the deal. The hearing to consider the agreement would recommence on January 3, with the possibility that it would continue to Saturday, January 4.
