Detroit to pay $85 million under UBS, Merrill Lynch pension swaps deal

By Caroline Salls

Pittsburgh, March 4 - The City of Detroit, UBS AG and Merrill Lynch Capital Services, Inc. entered into a settlement under which all claims related to the parties' pension swaps arrangements were resolved, according to a news release.

The city said the settlement represents a significant discount from the $286 million termination payment that it would otherwise owe in connection with the swaps.

Specifically, the proposed settlement amount is $85 million, which Detroit emergency manager Kevyn Orr said will save taxpayers $201 million.

In addition to these savings, the definitive agreement provides for UBS and Merrill Lynch, 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.

Detroit said it retains its right to continue to pursue its litigation announced on Jan. 31 against service corporations to invalidate the certificates of participation, but it also agreed to release UBS and Merrill Lynch from any claims related to those COPs and swaps transactions.

During the term of the definitive agreement, which is retroactive to Jan. 1, Detroit will pay down the $85 million by continuing to make its regular quarterly payments under the collateral agreement to UBS and Merrill Lynch. Any remaining amount will be paid on the effective date of a plan of adjustment or upon securing financing after the effective date.

In the settlement UBS and Merrill Lynch also will agree to vote their class of claims in support of the city's plan of adjustment. Detroit said this is the first creditor class to publicly support the plan since it was filed last month.

"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," Orr said in the release.

"We hope the swaps resolution serves as a model for compromise on other matters related to Detroit's finances."

The settlement is subject to approval by the U.S. Bankruptcy Court for the Eastern District of Michigan.

Detroit filed bankruptcy on July 18, 2013 under Chapter 9 case number 13-53846.

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