03.17.14

More on Judge Rhodes’ Docket. The Detroit City Council voted 6-3 late last Friday to beat still another snowstorm and approve a $120-million loan from Barclays in an effort to accelerate its investment in essential public services, such as police, fire and public lighting. The loan, which Kevyn Orr requested approval for earlier this month from U.S. Bankruptcy Judge Steven Rhodes, would be backed by the city’s pledge of its income tax revenue and the proceeds from the future sales of assets, except for Detroit Institute of Arts property. Last October, the previous council had unanimously rejected an earlier version of the loan; however that loan included $230 million to pay off swaps from a pension debt interest-rate transaction brokered in 2005 by former Mayor Kwame Kilpatrick’s administration. Nevertheless, other key creditors, including a group of European banks, a bond insurer (Syncora), and Detroit’s two retirement systems, filed new court briefs at the end of last week in opposition, arguing that the Motor City’s revised loan request is not transparent and provides insufficient information with regard to interest rates and other terms. Mr. Orr has told Judge Rhodes the proceeds are critical to Detroit’s sustainability, while the banks, Syncora Guarantee, and the city’s two unions have objected until there is greater disclosure—especially with respect to the associated fees, interest rates, and the competitive nature of the bid, arguing: “The city cannot implicitly rely on its investigation last August and September that led to Barclays being selected as a lender of $350 million,” as well noting to Judge Rhodes that the city is now proposing—percentage wise—to pay Barclays a higher percentage fee than previously—urging the federal bankruptcy court to order Detroit “to seek authorization of such new loans by filing a new motion, providing creditors and parties in interest with all of the material terms of the new loan and a complete set of the loan documents.” Under Mr. Orr’s proposal, Detroit would pay an interest rate based on the London Interbank Offered Rate plus 3.5%, with 3% market flex built in—but that information was not incorporated in the city’s filings to the federal court. U.S. Bankruptcy Judge last October had reached an earlier agreement with Barclays which would have not only been used for the essential services, but also to terminate its swaps agreement; however, in January, Judge Rhodes rejected the swaps settlement; he approved the $120 million, but conditionally, warning Mr. Orr to exercise care and diligence in pledging the Motor City’s casino revenues.

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