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DETROIT, Dec 24 (Reuters) - The city of Detroit reached anagreement Tuesday with two banks to end a costly interest-rateswap agreement, a significant step as the city negotiates withcreditors to put together a plan to exit bankruptcy.
The terms of the agreement were not immediately released,but the details were announced on Tuesday to U.S. District JudgeGerald Rosen, the chief mediator in the bankruptcy case, a courtstatement said. The deal must still be approved by the U.S.bankruptcy judge overseeing the case, Steven Rhodes.
The deal was reached after two days of mediation this weekled by Rosen.
Detroit had initially secured a $350 million loan fromBarclays PLC, of which about $230 million would be usedto end the swap agreements with UBS AG and Bank ofAmerica Corp's Merrill Lynch Capital Services at 75cents on the dollar. The remainder of the cash was slated to beused to improve services in the city, which is hampered by $18.5billion in debt and the largest municipal bankruptcy in U.S.history.
The swaps had been intended to hedge interest rate risk fora portion of $1.4 billion of pension debt Detroit sold in 2005and 2006.
A spokesman for Bank of America declined comment. UBS couldnot be reached immediately for comment.
Rhodes last week encouraged Detroit to negotiate betterterms with the banks after he halted a hearing at which the citywas seeking approval of the deal.
"We are very pleased and hope that this is a change thatJudge Rhodes is happy with," Detroit attorney David Heiman, ofthe law firm Jones Day, said on Tuesday outside the federalcourthouse in Detroit, the Detroit News reported.
A spokesman for Detroit's emergency manager, Kevyn Orr, didnot immediately respond to a request for comment.
