NEW YORK—Today, U.S. Bankruptcy Judge Steven Rhodes rejected a proposal by Detroit’s Emergency Manager Kevyn Orr to pay off a complex financial deal that was originated in 2005 and turned catastrophic for the city during the recession.
The City’s proposal to pay off UBS and Bank of America for the deals, which was renegotiated down from $230 million to $165 million after Rhodes ordered the banks and the city back to the bargaining table in December, was denied again for being too generous. The Detroit Free Press characterized Rhodes’s decision as a “stunning blow to global banks UBS and Bank of America Merrill Lynch.”
“This is a huge win for the people of Detroit,” said Heather McGhee, Vice President of Policy & Outreach. “Judge Rhodes called out the deal for what it was: a massive giveaway to the banks. He deserves praise for putting the city first."
“There were so many indications that the swaps deal was bad at its inception,” said Demos Senior Fellow Wallace Turbeville and author of the report The Detroit Bankruptcy. “That the Emergency Manager reached a settlement just three days before he filed for bankruptcy was a very troubling thing to do. Judge Rhodes is right to reject the settlement and call attention to the questionable aspects of the original derivative deals."