U.S. Bankruptcy Judge Steven Rhodes, the judge overseeing Detroit’s bankruptcy case has asked the city to provide more details on the terms and planned expenditures of the proposed $120 million loan from London-based investment bank Barclay’s set forth to improve city services. The bankruptcy court hearing on the deal is scheduled for April 2.
Detroit City Council Voted 6-3 in Favor of Loan
Detroit’s City Council voted 6-3 earlier this month in favor of the loan, secured by Emergency Manager Kevyn Orr, that would finance “quality of life” improvements after Detroit’s Chapter 9 bankruptcy filing. The $120 million funding is a subset of the $1.5 billion outlined in the city’s bankruptcy court plan of adjustment for restructuring efforts over the next decade. It includes public safety, technology and other neglected services. The city anticipates it will spend $88.2 million of the loan funds in the 2014 fiscal year.
Orr’s spokesman, Bill Nowling, said the city will “comply with Rhodes’ order completely.”
Prior Agreements with Barclays
Two previously proposed agreements with Barclays fell through because Rhodes rejected the city’s plan of using a large percentage of the loans to pay off two banks as well as terminate a troubled pension-related debt.
Detroit is asking Rhodes to approve the new loan, which would be backed by income tax revenue and up to $10 million in collateral from the sale or “monetization” of undisclosed city assets. This would exclude city-owned art at the Detroit Institute of Arts.
A group of city creditors, including the bond insurer Syncora Guarantee feel the proposal is “vague” and have argued that the loan has different terms from a prior agreement. They feel the proposal should first be vetted by the court and other interested parties.
The terms of the loan would expire the same day Detroit exits bankruptcy, so the city would have to secure “bridge financing” to service the new debt or earmark certain revenues to repay the balance.
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Source: The Detroit News, Detroit bankruptcy judge seeks more details on proposed $120M loan, March 25, 2014