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Detroit sues retirement funds to void pension debt

Jan 31 (Reuters) - Detroit on Friday sued its two retirement systems in U.S. Bankruptcy Court, seeking to invalidate $1.45 billion of debt sold in 2005 and 2006 to fund public worker pensions, according to a court filing.

The lawsuit contends contracts the city entered into for the debt sale were illegal under Michigan law and that all other contracts connected to the debt are also void.

Those other contracts would include the city's deals with investment banks to hedge interest rate risk on some of the pension debt. The deals soured as interest rates dropped along with Detroit's credit ratings. The money owed to the banks was a key element that drove Detroit to file for municipal bankruptcy in July.