People took the streets in front of the federal courthouse in downtown Detroit during the first day of a bankruptcy trial. , a photo by Pan-African News Wire File Photos on Flickr.
November 27, 2013 at 4:25 pm
Banks object to Detroit's proposed $350M bankruptcy loan
Robert Snell and Chad Livengood
The Detroit News
Detroit — A trial over Detroit’s plan to seek a $350 million bankruptcy loan was pushed back Wednesday amid new objections by creditors.
U.S. Bankruptcy Judge Steven Rhodes and attorneys representing the city and several creditors agreed in principle to delay the Dec. 10-12 trial by one week to Dec. 17-19. The city says it needs the money to pay off debt and improve city services as part of its financial restructuring.
Several creditors are trying to convince Rhodes to reject the plan, in which Detroit would terminate a troubled interest rate swap agreement with two big banks and pay them a $230 million fee from the proposed $350 million loan from the investment bank Barclays.
European banks that hold Detroit debt and the American Federation of State, County and Municipal Employees argued in court papers Wednesday that the proposed loan is premature and should be included in a debt-cutting plan that Detroit will file if the city next week is ruled eligible for Chapter 9 bankruptcy relief.
The objecting parties argue the loan would allow the city to spend money improving city services at the expense of creditors, who are owed billions, and would lock up revenue and city assets despite a lack of negotiations with creditors. The objectors include Hypothekenbank Frankfurt International S.A., Assured Guaranty Municipal Corp., which is a city bond insurer, and the Retired Detroit Police and Fire Fighters Association.
“The proposed financing creates a significant risk that the revitalization process and the proposed post-petition financing will be used to boot strap a plan of adjustment which subsidizes revitalization by cuts to recoveries to which creditors otherwise would be entitled,” lawyers for the banks wrote in a filing Wednesday.
Detroit Emergency Manager Kevyn Orr wants to use part of the loan to pay UBS AG and Bank of America to exit an interest rate swap agreement tied to $1.44 billion in pension debt the city borrowed in 2005-06.
The remaining $120 million would finance investments into city information technology, blight removal and other so-called “quality-of-life” spending while in bankruptcy.
Barclays is charging Detroit a nearly $4.4 million fee to process the $350 million loan — half of which the city has already shelled out — plus an interest rate of at least 3.5 percent on the note. The city’s investment banker, Miller Buckfire, would be paid $525,000 for its role in brokering the loan, according to a court filing Wednesday.
“The city is supposed to be negotiating in good faith with AFSCME and other key creditors in mediation and otherwise regarding the terms of a consensual plan of adjustment, yet the city seems intent on literally ‘giving away the store’ prior to even filing a proposed plan of adjustment, leaving the city with few (if any) remaining unencumbered assets and at a time when the city has suspended its most significant ongoing payment obligations,” AFSCME lawyer Sharon Levine wrote Wednesday.
From The Detroit News: http://www.detroitnews.com/article/20131127/METRO01/311270084#ixzz2m5HlHMFv