So in declining to approve Detroit's proposed payoff of its interest rate swaps – all out of the money, naturally – Judge Rhodes has reminded us that the case is not pending in Wilmington or Manhattan.

But now what? The swaps and their supporting collateral (a particular tax revenue stream) are the beneficiaries of the safe harbors, which means the counterparties are not subject to the automatic stay, among other things. Thus, while there has been some suggestion that Detroit might challenge the validity of the swaps, in the interim how does Detroit regain control of the revenue, which they say they need?

The parties stipulated that the terimination amount due was $247 million at the end of 2013. Presumably the counterparties get to hold onto the tax revenue until they are paid that amount. In that light, paying $160 million to end the swaps does not look so bad.

Maybe Detroit asks the judge to enjoin the counterparties while they challange the validity, but then there is our friend section 560, which says that termination of a swap shall "not be stayed, avoided, or otherwise limited … by order of a court."  

Sure Detroit will get the money back from the counterparties if it turns out the swaps are not unenforceable, but in the interim there might be a lot of chaos.