Please, sir, may I have some more?
[Photo by Chris Savage | Eclectablog]
Steven Rhodes, the federal judge overseeing Detroit’s Chapter 9 bankruptcy, halted discussions on Emergency Manager Kevyn Orr’s plan to borrow $350 from Barclay’s bank to retire some terribly negotiated debt swaps, effectively moving banks to the head of the line in the bankruptcy proceedings. In what can only be described as doing the residents of Detroit — particularly the retirees — a solid, Rhodes described the deal as being “too generous” to the banks.
Detroit could end up with millions more for public services after U.S. Bankruptcy Judge Steven Rhodes questioned whether a loan deal with the city was too generous for the banks and ordered both sides to renegotiate.
Rhodes questioned the amount the city will pay two banks as part of an agreement to refinance a debt deal gone sour. He indefinitely suspended the trial over whether to approve the deal and related bankruptcy financing between the city and UBS and Bank of America Merrill Lynch, adding that a deal paying the banks 75 cents on the dollar is too generous.
I have taken criticism for my support of the bankruptcy process and for Rhodes’ approach but I continue to be impressed by him and the calm, rational approach he’s taking. Actions like this one show that he’s keeping the residents of Detroit in mind as he works through the bankruptcy process.
If anyone thinks that Orr would be equally fair, just keep in mind that, with regard to this situation, he said through a spokesperson, “We think we put the best deal on the table.”
Judge Rhodes doesn’t agree. And that is a Good Thing.
UPDATE: As a result of the negotiations between the city of Detroit and the banks who want to be paid off before everyone else at a much higher rate than everyone else, city officials are threatening to sue Bank of America and UBS if they don’t renegotiate. Why sue? Because the bogus debt swap deal they signed with the Kilpatrick administration may well have been illegal.
Imagine that. Wall Street banks exploiting a city in financial crisis. Who woulda thunk it?