By Joseph Lichterman
DETROIT Nov 14 Detroit must disclose the fee
structure of a $350 million debtor-in-possession financing
agreement, a bankruptcy judge ruled on Thursday, turning back
the city's efforts to keep secret the cost of a controversial
loan package, and leading to a sharp exchange with one of the
bankers involved in the deal.
The city and Barclays Capital had requested the fees be kept
a secret because the details are commercially sensitive and
might raise the price of the loan.
But U.S. Bankruptcy Judge Steven Rhodes said in his ruling
that it was "really quite irrelevant" that Barclays did not want
to disclose the fees. He noted that the fee letter is subject to
Michigan's Freedom of Information Act.
"It's even irrelevant that the city may have agreed to have
kept it confidential because there's nothing in the Freedom of
Information Act that exempts material that is subject to a
confidentiality agreement between a private party and a public
institution like the City of Detroit, or permits enforcement of
such a confidentiality agreement," Rhodes said.
James Saakvitne, managing director of Barclays municipal
liquidity origination group, testified that the bank's
competitors would benefit from knowing how much Barclays charges
for DIP financing.
When he added: "It's very important to us to be there to
help the city," Rhodes interrupted him, saying: "Hold on. What's
very important to you is to make money."
Saakvitne later warned that, "if all fees are going to be
made public, that might put a real chill in the market and
(scare off) lenders from being willing to show their pricing
"So much for being willing to help the city, huh?" Rhodes
Detroit reached the loan agreement with Barclays, a unit of
Britain's Barclay's Plc, in October, but the deal still
must be approved by Judge Rhodes. About $230 million of the
proceeds would be used to end interest-rate swaps contracts that
the city has with Bank of America Corp's Merrill Lynch
Capital Services and UBS AG. The swaps were related to
debt sold in an effort to help Detroit make payments into city
About $120 million of the DIP financing would be used to
improve city services. The financing would be largely secured
with a pledge of Detroit's income tax and casino tax revenue.
Bond insurers and others have objected to Detroit's proposal to
pay off its swap counterparties ahead of other creditors.
Detroit's unions, pension systems, bond insurers and others
also objected to the Barclays fee letter being filed under seal.
Rhodes, who is overseeing the historic municipal bankruptcy case
Detroit filed in July, has scheduled a hearing beginning Dec. 10
to decide whether or not to approve the loan.