UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION IN RE: CITY OF DETROIT, MICHIGAN

Chapter 9 Case No. 13-53846 Hon. Steven W. Rhodes Hon. Gerald E. Rosen

Debtor. _________________________________________/

SETTLEMENT BETWEEN DEBTOR AND SWAP COUNTER PARTIES BEFORE THE HONORABLE GERALD E. ROSEN, CHIEF JUDGE United States District Judge Tuesday, December 24, 2013 APPEARANCES: For the City of Detroit: Robert Hertzberg Pepper Hamilton 4000 Town Center Southfield, MI 48075 Edwin E. Smith Bingham McCutchen LLP One Federal Street Boston, MA 02110 Jason Jurgens Cadwalader Wickersham & Taft LLP One Financial Center New York, New York 10281

For UBS AG:

For Merrill Lynch Capital Services:

In Re City of Detroit 13-53846

ALSO APPEARING:

KEVYN D. ORR Emergency Manager, City of Detroit. William W. Chandler On behalf of UBS AG. James Nacos Representative on behalf of Bank of America Merrill Lynch.

To Obtain a Certified Transcript: Carol S. Sapala, RMR, FCRR 313.961.7552 www.transcriptorders.com

In Re City of Detroit 13-53846

Settlement Hearing

12-24-2013

___________________________________________ IDENTIFICATION PAGE

WITNESSES None. Settlement on Record 4

Certificate of Court Reporter

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In Re City of Detroit 13-53846

4 Settlement Hearing 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Detroit, Michigan Tuesday December 24, 2013 11:33 a.m. THE COURT: appearances, please. MR. HERTZBERG: Your Honor, Robert Hertzberg Good morning. May I have 12-24-2013

Pepper Hamilton, on behalf of the City of Detroit. MR. SMITH: Good morning, Your Honor. Edwin

Smith, Bingham McCutchen on behalf of UBS AG. MR. JURGENS: Good morning, Your Honor. Jason

Jurgens, Cadwalader, Wickersham & Taft LLP on behalf of Merrill-Lynch Capital Services. THE COURT: Okay. Very good. Would counsel

like to introduce their client representatives for the record, please. MR. HERTZBERG: Yes, Your Honor.

My client representative is Kevyn Orr, the Emergency Manager for the City of Detroit and he's here with me. THE COURT: MR. SMITH: Mr. Orr. Mr. Smith?

William Chandler from UBS AG is I'm asking him to

here in the courtroom, Your Honor. stand. THE COURT: Thank you. Yes.

Mr. Jurgens for BAML.

MR. JURGENS:

James Nacos is here today,

In Re City of Detroit 13-53846

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Your Honor, on behalf of the bank. THE COURT: All right. Okay. Very good. Thank you.

The record should reflect that this

matter is now back before the Court as a result of the mediator's order to mediation for December 23rd and 24th. The record should reflect that Judge Elizabeth Perris, fellow mediator, is here with the Court and has participated robustly in what has been I think fair to say an intensive series of negotiations between all of the parties. And the Court has now been advised that a settlement has been reached between The Debtor and the what we colloquially refer to as the SWAP counter parties UBS and BAML. Who's going to put the settlement on the record? MR. HERTZBERG: THE COURT: I am, Your Honor.

Mr. Hertzberg, podium, please. Your Honor, first, on behalf

MR. HERTZBERG:

of The City, I'd like to thank the mediators for all the assistance they've provided in reaching this settlement. The terms of the settlement are as follows, Your Honor. The City and the SWAP counter parties have reached agreement that from The City's point of view, will approve the SWAP settlement and will modify the In Re City of Detroit 13-53846

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Forbearance Agreement in the following ways. One, upon closing, the SWAP counter parties will be paid $165 million as the optional termination payment together with closing and breakage costs of up to $4.2 million. Two, all amounts in the collateral account, including the 4.2 million January payment in the hold back account will be released to The City upon closing. Three, the post-petition financing will be reduced such that the SWAP termination loan will be $165 million. Four, should the parties fail to close on the optional termination on or before January 31, 2014, The City and the SWAP counter parties shall be entitled, upon giving written notice, to terminate the forbearance agreement and their obligations and undertakings thereunder. Five, these points will be memorialized in a sixth amendment to the Forbearance Agreement which will be filed together with an amended motion to approve the SWAP settlement in or before the close of business on December 27th. Sixth, the mediators will recommend that the objections to the approval SWAP settlement, including any objections regarding validity and enforceability of In Re City of Detroit 13-53846

7 Settlement Hearing 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 12-24-2013

the Forbearance Agreement will be otherwise overruled. Finally, seven. To the extent that the issue --

that the issues subject to the fully submitted motion to dismiss filed by the SWAP counter parties in the adversary proceeding known as Syncora versus UBS adversary proceeding 13-05395 are similar to the issues presented in determining the validity and enforceability of the forbearance agreement and that deciding such issues will not delay or defer the hearing on or before the closing on the optional termination and post-petition financing. We understand that the mediator will recommend that such motion will be determined at or about the same time as the determination on the pending motion to approve the assumption of the forbearance agreement and the settlement of the SWAPS. THE COURT: Mr. Hertzberg, I just want to

clarify that last point here for the record. The settlement point on this is that the mediators recommend that the issues in the motion and the consent be considered and determined, but the mediators will not be making any recommendation as to how they should be determined. MR. HERTZBERG: THE COURT: Correct, Your Honor.

I think that would be a trespass

In Re City of Detroit 13-53846

8 Settlement Hearing 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 days. Does this represent the Emergency Manager's view of the settlement and is it the Emergency Manager's In Re City of Detroit 13-53846 12-24-2013

upon the Bankruptcy Court's jurisdiction of the case. But I do think that in view of the nature of the settlement, I think it's appropriate that the Bankruptcy Court hear these issues together and determine them without the mediators making any recommendation as to which way they will be determined. MR. HERTZBERG: THE COURT: Okay.

That's it, Your Honor. Thank you.

All right.

Mr. Smith, does that represent UBS's view of the settlement, sir? MR. SMITH: It does, Your Honor. And I think

I'm authorized to say it also represents Bank of America Merrill-Lynch's view. THE COURT: Thank you. Is that correct, Mr. Jurgens? That's correct.

MR. JURGENS: THE COURT:

Could I just have the clients for

each side also acknowledge that this is the settlement? Mr. Orr, you've been intimately involved in the negotiations over the last two days going back months now -MR. ORR: Yes. -- but culminating in the last two

THE COURT:

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recommendation that the settlement be approved? MR. ORR: Yes, Your Honor. This does

represent our view of the settlement and it is my recommendation that the settlement be approved as allocated here today. THE COURT: MR. ORR: Thank you.

Thank you. And for UBS? My name is William W. Chandler.

THE COURT:

MR. CHANDLER: I represent UBS AG.

Your Honor, we agree.

This represents our

understanding of the settlement. THE COURT: Thank you. And for Bank of

America Merrill-Lynch. MR. NACOS: Your Honor, James Nacos from Bank We agree. Very good. Thank you.

of America Merrill-Lynch. THE COURT: All right.

Okay.

So that everybody understands what the

procedure will be from here, Judge Perris and I will include a transcript of this with a mediator's recommendation to Judge Rhodes. Of course, all parties understand here that Judge Rhodes is not bound by this. I think it's fair to say

he's expressed that he has some reservations about some of the claims and it will be up to him to determine In Re City of Detroit 13-53846

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whether or not this is a fair and equitable settlement for The City and for the SWAP counter parties, but we will make a mediator's recommendation to that affect. All right? Anything else? No. Thank you, Your Honor. I just want to say

MR. HERTZBERG: THE COURT:

Thank you all.

here on the record that mediators -- I speak for Judge Perris who's in the courtroom as well and our consultant, Professor Torielli, who I should have introduced as well, we appreciate the spirit in which these mediations were undertaken. That goes for the cop

parties that are here and the insurers, as well, even though we haven't yet been able to reach agreement. We

understand this has been difficult for everybody and we appreciate it. All right. This is -- I think it's the first, I

think it's fair to say, significant agreement in the bankruptcy. MR. HERTZBERG: Thank you, Your Honor.

(This hearing concluded at 11:25 a.m.)

In Re City of Detroit 13-53846

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CERTIFICATE OF COURT REPORTER

I certify that the foregoing is a correct transcript from reported proceedings in the above-entitled matter.

s/Carol S. Sapala, FCRR, RMR

December 24, 2013