Feb. 1 (Bloomberg) -- Detroit, the biggest U.S. municipality in bankruptcy, challenged the legality of a series of financial transactions behind $1.44 billion in pension bonds and asked a judge to let it stop making the payments.
The contracts, signed in 2005 and 2006, were a “sham” designed to circumvent a Michigan law capping how much debt cities could incur, the city said yesterday in a complaint filed in U.S. Bankruptcy Court in Detroit.
Those contracts allowed two city service corporations to issue so-called certificates of participation to fund pensions for municipal workers. Detroit officials at the time decided the contracts didn’t need to be considered debt for purposes of the state cap, according to court papers.
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