Thursday, March 13, 2014

Detroit City Council set to vote Friday on $120-million bankruptcy loan

News, per the Detroit Free Press:

4:06 PM, March 13, 2014  

The Detroit City Council on Friday will consider a $120 million loan from Barclays to speed the city’s bankruptcy restructuring and invest in services such as police, fire and public lighting.

As collateral, the city is pledging its income tax revenue and the proceeds from the future sales of assets, except for Detroit Institute of Arts property. The city is likely to pay about 3.5% interest on the loan.

U.S. Bankruptcy Court Judge Steven Rhodes, who is overseeing Detroit’s ongoing bankruptcy case, has ultimate approval of the $120-million deal, spearheaded by emergency manager Kevyn Orr.

The state’s emergency manager law gives the council a chance to weigh in on the loan, too. If the council rejects the Barclays loan, it will have a week to submit an alternative plan to the state’s Emergency Loan Board, which would then pick between Orr’s plan and the council’s alternative.

The council unanimously rejected in October an earlier version of the loan. But that deal with Barclays, which Rhodes also shot down, included $230 million to pay off a controversial pension debt interest-rate transaction — known as swaps — brokered in 2005 by Mayor Kwame Kilpatrick’s administration.

The city doesn’t need the $230 million any more because it reached a new deal with UBS and Bank of America Merrill Lynch to pay off the swaps for $85 million, after the city exits bankruptcy, without using any newly borrowed cash.

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