Detroit pension termination amount cut to $165 million; loan reduced

By Caroline Salls

Pittsburgh, Dec. 24 - The City of Detroit and the banks that underwrote a pension funding plan agreed to further reduce a termination amount to $165 million, removing a major hurdle to the city's continued restructuring and turnaround efforts, according to a news release.

Detroit said the deal on the pension funding instruments will free up about $15 million per month in casino revenue to be used on rebuilding and improving basic services for residents and closes a chapter on a financial deal that helped drive the city to insolvency.

"This is an important development for the city and its residents because it means we can start moving forward on implementing needed investments in public safety and services," emergency manager Kevyn Orr said in the release.

"This agreement represents a significant reduction from the original deal struck with the banks. The banks and the city, through mediation, and with the mediator's recommendation, have accepted the reduction in terms."

Originally, Detroit said Bank of America Merrill Lynch and UBS had agreed to terminate the city's debt on the pension deals for $230 million, which represented a roughly 25% reduction from the $293.3 million the city owed on the secured debt.

Detroit said Tuesday's deal put the savings to the city at $128 million, or 43% of the original amount owed.

To pay the banks, the city has secured $350 million in post-bankruptcy financing through Barclays. As a result of the mediation deal, Detroit said it has agreed to lower the post-bankruptcy loan to $285 million, with $165 million going to the banks for the termination amount and $120 million to the city to fund immediate improvements to basic city services.

The termination agreement and the revised post-bankruptcy financing are subject to approval by the U.S. Bankruptcy Court for the Eastern District of Michigan. A hearing is scheduled for Jan. 3.

The city said Gerald Rosen led the mediation negotiations on Monday and Tuesday.

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

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