DETROIT, March 3, 2014 /PRNewswire/ -- Kevyn Orr, the Emergency Manager for the City of Detroit ("Detroit" or the "City"), announced today that the City, UBS AG ("UBS") and Merrill Lynch Capital Services, Inc. ("MLCS") have entered into a settlement under which they have resolved all claims related to pension 'swaps' arrangements among the City, UBS and MLCS. Detroit has filed a motion to approve the settlement (including a term sheet describing the settlement terms) with the United States Bankruptcy Court for the Eastern District of Michigan ("Bankruptcy Court"), which must still approve the settlement. A definitive agreement reflecting the settlement will be filed in the coming days.
In the settlement UBS and MLCS also will agree to vote their class of claims in support of the Plan of Adjustment proposed by the City. This is the first creditor class to publicly support the City's plan since it was filed last month.
"We are pleased to have resolved this matter with UBS and Merrill Lynch," said Mr. Orr. "We appreciate the banks' willingness to work with us to reach a solution that we think balances our goal to provide realistic recoveries to creditors while freeing up critical funds that we can invest to improve the quality of life in Detroit. We look forward to Judge Steven Rhodes's decision on our proposed settlement, and we hope the 'swaps' resolution serves as a model for compromise on other matters related to Detroit's finances. The vitality of Detroit and the surrounding region demands good faith negotiation and compromise grounded in reality from all sides, and we remain focused on ensuring a strong future for Detroit."
The settlement represents a significant discount from the $286 million termination payment that the City would otherwise owe in connection with the 'swaps.' With today's proposed settlement amount of $85 million, Mr. Orr and his team have saved Detroit taxpayers approximately $201 million. In addition to these savings, the definitive agreement provides for UBS and MLCS, upon payment of the settlement amount, to release their claims on casino tax and development revenue that the City had pledged as collateral for the 'swaps' arrangement.
The City retains its right to continue to pursue its litigation – announced on January 31, 2014 – against the Service Corporations to invalidate the Certificates of Participation ("COPs"), but it has also agreed to release UBS and MLCS from any claims related to those COPs and 'swaps' transactions.
During the term of the definitive agreement, which is retroactive to January 1, 2014, Detroit will pay down the $85 million by continuing to make its regular quarterly payments under the collateral agreement to UBS and MLCS. Any remaining amount will be paid upon consummation of a plan of adjustment or upon securing financing thereafter.
SOURCE City of Detroit