Detroit threatens to sue two banks over loan deal

Chad Livengood & Robert Snell, Detroit News

The city is threatening to sue two big banks if Detroit’s lawyers cannot reach more favorable terms for terminating a troubled pension debt deal blamed on the city’s plunge into bankruptcy.

The city’s legal team issued the threat and gave an update Friday to U.S. Bankruptcy Judge Steven Rhodes, who is concerned Detroit’s plan to pay the banks up to $230 million to end an interest rate swap arrangement is unfair to other city creditors.

The threat injected drama into private negotiations surrounding a deal that Emergency Manager Kevyn Orr says is essential to restructuring the city’s finances, raising money to reinvest in Detroit and emerge from bankruptcy court as soon as next year.

If a deal cannot be reached, the city is threatening to sue UBS AG and Bank of America’s Merrill Lynch Capital Service. Meanwhile, negotiations will continue as Orr, banks and bond insurers were ordered to attend mediation sessions Monday and Tuesday — Christmas Eve — in an attempt to reach a more favorable deal for Detroit.

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