- From LexisNexis® Mealey’s™ Daily Legal News.
The Police and Fire Retirement System of the City of Detroit (PFRS) and the General Retirement System of the City of Detroit (GRS) on Aug. 16 filed a brief opposing the termination of a forbearance agreement between the city and what are called Swap Counterparties under which the city would agree to the full amount of the Swap Counterparties’ $ 300 million in claims against the bankruptcy estate (In Re: The City of Detroit, No. 13-53846, Chapter 9, E.D. Mich. Bkcy.).
Detroit filed for Chapter 9 bankruptcy in the U.S. Bankruptcy Court for the Eastern District of Michigan on July 18.
In 2009, the city entered into an agreement with unspecified service corporations, a group of unnamed parties called the Swap Counterparties and U.S. Bank NA under which the city pledged casino revenue as collateral to secure its obligations under what are called Swap Agreements, the retirement systems contend.
The agreement provides that if the city fails to meet its obligations under the Swap Agreements, the Swap Counterparties are entitled to “trap” the city’s casino revenue, which amounts to $ 15 million per month, the retirement systems add.
Moreover, the Swap Counterparties are entitled to terminate the Swap Agreement and seek a termination payment from the city valued at $ 300 million, the retirement systems say.
The city and the Swap Counterparties entered into a forbearance agreement just before the city filed for bankruptcy, the retirement systems argue, under which the Swap Counterparties agree to forbear the termination of the Swap Agreements and trapping the casino revenue.
The city and the service corporations agreed that any amounts owed to the Swap Counterparties would be treated as fully liquidated claims, and the city would have the right to direct the Swap Counterparties to terminate the Swap Agreements. Terminating the Swap Agreements would mean that the city would pay the Swap Counterparties a percentage between 75 percent and 82 percent of the full termination payment.
The city moved in the Bankruptcy Court to have the forbearance agreement treated as a settlement agreement. The retirement systems argue that the city has failed to provide sufficient information that treating the forbearance agreement as a settlement agreement is in the best interests of bankruptcy estate.
The retirement systems maintain that the prepetition liens of the Swap Counterparties extend to casino revenue acquired by the city post-petition.
The retirement systems are represented by Robert D. Gordon and Shannon L. Deeby of Clark Hill in Birmingham, Mich.