Detroit Makes Progress in Restructuring Pension Debt

December 27, 2013 ( – Progress has been made in restructuring pension debt for the city of Detroit, according to recent news reports.

Earlier this week, city officials announced that their negotiations with the banks involved, which include Bank of America Merrill Lynch and UBS, had yielded a preliminary agreement to reduce the termination amount related to the pension debt. The agreement, which still needs to be approved by a federal bankruptcy judge, would significantly reduce the amount of debt that city of Detroit owes on pension deals.

The city announced that it has secured a post-petition financing loan through Barclays, with $165 million going to the banks for the termination amount and $120 million going to improvements of basic city services.

However, there is word that Detroit’s two pension funds—the General Retirement System and the Police and Fire Retirement System—plan to file a lawsuit to block or amend the agreement, according to The Detroit News. The concern by the pension funds is that the agreement, and the city’s subsequent financial restructuring to recover from bankruptcy, will ultimately necessitate pension reductions to retired city employees.

This is not the first time that Detroit’s financial troubles have put the city and the pension funds at odds. In July, a federal bankruptcy judge dismissed a lawsuit by the pensions funds, which had contested the city’s bankruptcy proceedings, again relating to concerns that retiree pensions would be negatively impacted (see “Detroit Pensions’ Lawsuit Against Bankruptcy Stayed”).