Oct 11 Barclays Plc will provide
cash-strapped Detroit with up to $350 million in
debtor-in-possession financing in the wake of its municipal
bankruptcy filing in July, Detroit's top official said on
Detroit will use the money for infrastructure investments
and to terminate interest-rate swap agreements that were not
advantageous for the city, said Kevyn Orr, the city's
state-appointed emergency manager.
Detroit is the first large U.S. city to seek so-called
debtor-in-possession (DIP) financing after filing for Chapter 9
municipal bankruptcy on July 18. The city said it plans to ask
for a November hearing on the financing, which is subject to
federal bankruptcy court approval.
Detroit, with at least $18 billion of debt and obligations,
is the largest U.S. city to ever have filed for bankruptcy.
About $230 million of the financing's proceeds will be used
to end swap contracts the city entered into with Bank of America
Corp's Merrill Lynch Capital Services and UBS AG
in conjunction with debt sold for Detroit's public
Bill Nowling, Orr's spokesman, said the DIP financing was
needed for the city to execute the swap termination deal with
Merrill Lynch and UBS that Detroit asked the bankruptcy court to
approve over the objection of bond insurers, some bondholders,
the pension funds and others. He said court mediation with bond
and swap insurer Syncora Guarantee Inc, the main
objector, was continuing.
Without the deal, terminating the swaps could cost an
additional $60 million.
The city would use the rest of the proceeds from the DIP
financing - about $120 million - to improve public safety and
other basic services, remove blighted properties and boost
technology infrastructure, Orr said.
Detroit has seen its population shrink to about 700,000 from
1.8 million in the 1950s, when Detroit's three automakers
dominated the industry. In recent years, the city has made
international headlines with its urban blight, roaming packs of
feral dogs and outdated and sometimes inoperable police and fire
The financing will be secured with a pledge of Detroit's
income tax and casino tax revenue and if those funds are not
sufficient, "net cash proceeds from any potential monetization
of city assets that exceeds $10 million," according to the
Nowling said while the deal with Barclays doesn't specify
particular city assets, anything that could be potentially
monetized, including assets at the Detroit Institute of Arts, is
on the table.
"We haven't made a decision about selling anything," he
Barclays will have priority over certain claims - all
administrative expense, post-petition and pre-petition unsecured
claims. Orr has deemed $11.9 billion owed by the city to its
pension funds, bondholders, retirees and others to be unsecured
The financing will carry the London Interbank Offered Rate
(LIBOR) plus 2.5 percent, subject to market fluctuations, and
will have an outside maturity date of 30 months from the closing
The city chose Barclays in a competitive process conducted
over the past month that resulted in 16 proposals from financial
institutions, Orr's statement said. Barclays' proposal was
deemed "the most advantageous based on structure and pricing,"
Detroit heads to a trial later this month to prove it is
eligible for bankruptcy.