January 16, 2014
The judge in the Detroit bankruptcy case struck down a controversial proposed settlement in which the city would have paid two big banks $165 million.
In 2009 the city reached a deal with Bank of America and UBS promising the banks the future flow of casino tax money in return for $300 million. Judge Steven Rhodes ruled that the deal likely would not be allowed to stand under the city’s bankruptcy reorganization. He also rejected a proposed settlement would have resolved the original deal for $165 million, even though the bankruptcy court’s mediator had recommended that Rhodes approve the settlement.
The decision was a major victory for the city’s employees and retirees who face deep cuts in pension benefits as part the bankruptcy. It means that the big banks are essentially unsecured creditors along with the retirees. Had the judge upheld the settlement, the banks would have collected money ahead of the pension plans as part of the bankruptcy process.