Jan 21 Detroit's available cash shrank less
quickly than city officials feared it would in the latest
quarter, but it was still down nearly 32 percent from the
previous quarter to $87.5 million, according to a report posted
on the city emergency manager's website on Tuesday.
The decline was significant, but did not approach the levels
feared by Detroit Emergency Manager Kevyn Orr. In August, he
warned that the city could be out of cash at year end if Detroit
were unable to gain unfettered access to casino tax revenue,
which is pledged to banks for payments on interest rate swap
agreements that the city is trying to terminate at a steep
U.S. Bankruptcy Judge Steven Rhodes, who is overseeing
Detroit's bankruptcy case, last week rejected a deal for the
city to end the swaps at a 43 percent discounted payment to two
investment banks. Rhodes urged Detroit to renegotiate with its
swaps counterparties, UBS AG and Merrill Lynch Capital Services.
Detroit's cash on hand beat the city's forecast of ending the
quarter with just $40.7 million, largely due to
higher-than-expected property tax collections, the report
Orr's spokesman warned that the city's cash position remains
vulnerable to a sudden decline.
"If the city loses the right to keep its casino revenues,
which is a very serious question right now in court with regard
to the swaps and (pension debt), then that $87.5 million could
diminish rapidly," said Bill Nowling, the spokesman.
Detroit in 2005 and 2006 sold $1.45 billion of pension debt
to improve its unfunded public pension liability. The swaps were
used to hedge interest rate risk on some of the debt.
Orr took the cash-strapped city into federal bankruptcy
court in July to deal with more than $18 billion in debt and
liabilities and thousands of creditors.
The latest quarterly report was dated Jan. 15, one day
before Rhodes' ruling on the swaps deal. In the report, Orr said
he believed "approval of the swap settlement would be an
important step in the city's restructuring."
The report uses the same positive language to describe a
$285 million loan through Barclays PLC that Orr had negotiated,
with $165 million earmarked to pay off the swap counterparty
banks and $120 million to improve city services. Rhodes also
rejected the loan for the swaps payment.
Access to casino revenue, which totals as much as $180
million a year, has emerged as a key element of Orr's bankruptcy
strategy. Orr also planned to use casino revenue to help secure
the Barclays' loan.
"If we don't do anything such as secure this casino
revenue, if we don't go to the capital markets and borrow
additional funds, which appears unlikely which the city has done
every other year since 2008 to make up the difference, yes, the
projections show that by December of this year, we will run out
of cash," Orr said in an Aug. 30 sworn deposition in the case.
Year-to-date revenue was down $6 million from the same
period in fiscal 2013 and operating expenses dropped by nearly
$52 million, the report showed. Costs were lower due largely to
reduction of the city workforce by 776 positions since the end
of December 2012. Detroit's fiscal year began July 1.
Detroit has kept making payments on secured debt, although
the city defaulted on $9.37 million in payments on Oct. 1 for
certain general obligation bonds Orr deemed unsecured. Detroit
paid $8.5 million toward the swap agreements in the quarter that
ended Dec. 31, according to the report.
In the report sent to Michigan officials, Orr also stated he
plans to file a proposed plan of adjustment for the city before
the March 1 deadline set by the court.