In a new post as part of his ongoing investigations on the emergency manager, Guyette explains how a new lawsuit on behalf of Detroit is claiming that because the deal was illegal from the start, the city should not be required to pay off its debt.
The potential upside to litigating instead of negotiating is huge. If the swap deals are judged to have been invalid from the beginning, instead of having to pay $165 million more, the city could possibly recoup the $300 million it’s shelled out so far. That’s a swing of $450 million in Detroit’s favor. And even if the city only succeeded in having the swap debt classified as “unsecured” rather than “secured,” as the banks claim it is, then the banks, instead of being entitled to full repayment, would have to settle for dimes on the dollar, just like all the other unsecured creditors.
If it were to lose, though, the city would be on the hook for the full amount.
Could this be good news for Detroit? Read Guyette's full post here, and sound off in the comments.