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Judge Steven Rhodes / John Meiu, AP

DETROIT -- Detroit could end up with millions more for public services after a bankruptcy court judge questioned whether a loan deal with the city was too generous for the banks and ordered both sides to renegotiate.

U.S. Bankruptcy Judge Steven Rhodes questioned the amount the city will pay two banks as part of an agreement to refinance a debt deal gone sour. He indefinitely suspended the trial over whether to approve the deal and related bankruptcy financing between the city and UBS and Bank of America Merrill Lynch, adding that a deal paying the banks 75 cents on the dollar is too generous.

"I would encourage that as strongly as I can," Rhodes said.

Attorneys from the firm Jones Day, who are representing the the city in bankruptcy court, agreed to spend Thursday renegotiating the deal with Bank of America and UBS - and reconvene Friday morning for a hearing before Rhodes to discuss their progress.

Wednesday's trial intensified the focus on whether the swaps deal, done under former Mayor Kwame Kilpatrick's administration, was even legal, sending attorneys from all sides scrambling to consider the implications of Rhodes' move.

The decision had the dual effect of dealing a setback to a settlement that Detroit's bankruptcy attorneys described as crucial to the city's recovery while giving the city ammunition to convince the banks to offer a better deal.

Detroit, its creditors and Rhodes engaged in a two-hour tussle over the city's refusal to disclose its reasoning for not attacking the legality of the 2005 disastrous swaps.

Rhodes is being asked to approve the swaps settlement, which would result in a $350 million infusion of cash to the bankrupt city from London-based bank Barclays.

The city has argued that it must pursue the swaps settlement and bankruptcy financing to free up cash flow, regain direct access to its casino tax revenue and reinvest in city services. The swaps cost the city about $50 million a year, diverting about 5% of the city's revenue to an expense that has nothing to do with city services.

"We think we put the best deal on the table," said Bill Nowling, a spokesman for Detroit emergency manager Kevyn Orr, in an interview after the trial was suspended. "Obviously, the judge has some questions, and we want to answer those questions. If that means we need to spend a couple days in the room with these guys to get a better deal - or an explanation why we can't get a better deal - we're going to do that."

The delay jeopardizes the Barclays financing, which included $230 million to pay off the swaps and $120 million the city said it would reinvest in services. The city must get approval by Jan. 7 from Rhodes to receive the financing, or the debt deal collapses.

If the financing deal dies, the city would have to wait longer to get the cash it needs.

In the midst of the trial Wednesday, a dispute erupted over whether the city should be forced to disclose its assessment of the legality of the swaps, which were brokered under Kilpatrick's administration in 2005 to secure a steady interest rate on a $1.4 billion pension debt deal.

While attorneys rushed to respond to Rhodes' comments, Orr sat silently at the witness stand, not allowed to speak because he's not acting as an attorney in this case. He was seen discussing the city's options with Jones Day attorney Corinne Ball and others during a recess. Orr worked as a bankruptcy attorney for Jones Day's office in Washington, D.C., office before being named Detroit's emergency manager in March.



Copyright 2014 USATODAY.com

Read the original story: Judge orders Detroit, banks to renegotiate loan deal

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