Detroit faces another cash-flow crisis

Tue Nov 13, 2012 6:35pm EST

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(Reuters) - Detroit is projecting it will run out of cash next month unless the state of Michigan releases money due it from a debt sale, the city told its financial advisory board.

The city's report to the board, created as part of a consent agreement Detroit approved in April, said that "absent the availability of escrow proceeds, the city will need to employ other working capital solutions to avoid liquidity crises."

Projections show the city's weekly cash flow at just $4.1 million in mid-December before dropping to a negative $4.8 million at the end of the year.

The city submitted the report to the board on Monday.

The Michigan Finance Authority sold $129 million of bonds for Detroit in August, completing a debt sale aimed at raising $137 million for the cash-strapped city. While Detroit received some of that money, Michigan Treasury officials tied the release of another $30 million this year to Detroit's progress on reforms.

"The Department of Treasury is working with city of Detroit to establish milestones that will allow the release of bond funds being held in escrow and will continue to move the city forward in an expeditious manner," Caleb Buhs, a spokesman for the department, said on Tuesday.

Detroit faced a cash crisis this summer that led to warnings it could default on some bonds, as well as to subsequent downgrades that pounded the city's credit ratings deeper into the junk category.

The cash crunch and a default were subsequently averted by the bond sale.

Detroit also told its oversight board that it began a process last week to find a restructuring adviser to aid the city in analyzing strategies for swap agreements, recommendations for long-term cash flow and other matters.

In October, Moody's Investors Service said it was keeping Detroit on review for potentially another downgrade, citing in part the possible repeal of Michigan's 2011 emergency manager law by voters on November 6. Parts of that law, which was repealed by voters, were used to craft Detroit's consent agreement.

A spokesman for Moody's said on Tuesday that the review will be concluded later this month.

Detroit Mayor Dave Bing announced on Monday that the city lost Chief Operating Officer Chris Brown, who left to join a private wind power systems company. Bing said a process to replace Brown will start immediately.

(Reporting By Karen Pierog; Editing by Dan Grebler)

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Comments (11)
Marlboro wrote:
Well, there went the neighborhood.

Nov 13, 2012 9:43pm EST  --  Report as abuse
1peevedbob wrote:
Golly Gee Whizz, Detroit, What’s the problem. You are one of the bluest of the blue cities in one of the bluest of the blue states.
You have a cash flow problem, well just do what you always do.. RAISE TAXES. that usually fixes things, Right??

Nov 13, 2012 10:30pm EST  --  Report as abuse
patrickbad wrote:
And so it goes, another harbinger of leftist non-accountablity. All these politicians and left wing operatives live in secure gated communities, have armed body guards while the masses, dumb voters continue to vote them in. Michigan another state that was stolen by Obam through illegals, and double and triple voting minorities. Congrats you got what you voted for, broken cities, empty coffers, and violent angry mobs that are seething for more. Detroit has been democrat and left wing since the 60′s and white flight is evident. No more tax base. Flint, Detroit broken beyond repair and now they want money from the white suburbs. And you allow it.These thugs will not stop until the white population is literally enslaved to pay for their laziness and ineptness. So keep voting in these thugs, these criminals. And they will pull you down with them. This will not stop until there is a total collapse of our society. Romney was no prize but he was the lesser of the evils ad we allowed Obama to steal the election, because peple want more free crap and money. Shame on Americans for letting our nation go down like this.

Nov 13, 2012 11:02pm EST  --  Report as abuse
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