DETROIT - The original swaps deal with UBS and Merrill Lynch/Bank of America was for $280 million.
The first deal Detroit Emergency Manager Kevyn Orr negotiated with the banks was for $230 million, or the banks netting 81 cents on the dollar.
Early on, Judge Steven Rhodes gave it thumbs down, calling it too rich. So Orr went back to the negotiating table and offered a deal of $160 million or 66 cents on the dollar.
Again, Judge Rhodes said no.
This deal -- deal No. 3 -- has the city of Detroit paying $85 million or 30 cents on the dollar. Plunkett Cooney bankruptcy practice chief and bankruptcy expert Doug Bernstein said this one may very well stick.
"If this settlement's approved it may lead to other settlements with other classes of creditors, so you may not have as a much to litigate further down the road before confirmation," he said.
For his part, Orr said the following in a statement:
"We appreciate the bank's 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' 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."
By that he means this may set up other creditors for taking big losses in what's known as a cramdown.
"Potentially, through the cramdown provisions of the bankruptcy code, the plan could get confirmed by Judge Rhodes over the objections of other parties," said Bernstein.
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