(Adds details on bonds, use of proceeds, expert witness report)
Aug 28 Barclays Capital Inc has agreed
to raise up to $275 million to fund Detroit's exit from
municipal bankruptcy, the city announced on Thursday.
The funding will involve financial recovery bonds issued
through the Michigan Finance Authority then purchased by
Barclays at a price equal to par, according to deal's term
sheet. Barclays will be the exclusive underwriter and
syndication agent for the so-called exit facility.
The bonds, which include up to $200 million of tax-exempt
debt, will be secured by a lien on Detroit's income tax revenue.
They will initially be issued as variable-rate debt tied to the
SIFMA Municipal Swap Index plus 4.25 percent for tax-exempt
bonds, and one-month USD-LIBOR plus 4.75 percent for taxable
bonds. They will subsequently be re-marketed as fixed-rate debt.
Proceeds will be used to retire a $120 million loan from
Barclays, as well as fund post-bankruptcy improvements and pay
certain creditor claims. These will include a $45 million
settlement over soured interest rate swaps related to $1.4
billion of Detroit pension debt, the term sheet indicated.
"We are very pleased to have secured this exit facility and
are encouraged by the reception we received from the broader
financial community," Detroit Emergency Manager Kevyn Orr said
in a statement. "We look forward to deploying these funds in our
ongoing effort to make Detroit a viable and strong American city
The announcement came as U.S. Bankruptcy Court Judge Steven
Rhodes begins a key hearing on Tuesday to determine if the
city's plan to adjust $18 billion of debt is feasible and fair.
The city had been seeking a $300 million loan and
court-appointed expert witness Martha Kopacz noted in a report
last month on the plan's feasibility that the size and terms of
the deal were critical.
"To the degree the city is not able to procure the
anticipated exit financing in the amount or at a reasonable
interest rate will materially impact the city's cash flow
liquidity at its emergence from bankruptcy," her report said.
Detroit filed the biggest-ever municipal bankruptcy in July
(Reporting By Karen Pierog; Editing by Diane Craft, Bernard Orr
and Andre Grenon)