Detroit won a commitment from Barclays Plc for $275 million in financing to fund the city’s exit from its landmark bankruptcy, if a judge approves its debt-cutting plans at a trial slated to start next week.
Detroit, which filed the biggest U.S. municipal bankruptcy in history last year, is seeking court approval to eliminate more than $7 billion of its $18 billion in obligations to retired city workers, bondholders and other creditors.
The money from London-based Barclays would be used to pay off $120 million Detroit borrowed to help fund reorganization, pay some creditors and revitalize the city. The tax exempt bonds to be issued as part of the financing will pay an interest rate equal to a municipal swap index, plus 4.25 percent, said Bill Nowling, a spokesman for city emergency manager Kevyn Orr. The taxable bonds will be based on Libor, plus 4.75 percent.
“We are very pleased to have secured this exit facility and are encouraged by the reception we received from the broader financial community,” Orr said in a statement.
Detroit filed for bankruptcy after Orr concluded that decades of economic and population decline left it unable to provide adequate public services while meeting financial obligations. Since then, the city has cut deals with retirees, public workers and many bondholders to reduce its liabilities.
The plan faces opposition from bond insurers and some bondholders who claim Detroit should use its art collection to raise more money. The city has pledged to keep the collection off limits in exchange for funding from the state and a group of philanthropic foundations.
Syncora Guarantee Inc., which insures part of $1.4 billion in pension debt that the city seeks to cancel, plans to attack the so-called grand bargain between the city and a group of foundations that seek to keep Detroit’s art collection out of the hands of creditors.
Syncora argued that the foundations cannot be allowed to give $466 million to the city’s pension system without sharing part of the money with other creditors. The foundations have said they will only provide the money to help Detroit’s retired workers, and then only if the city protects the artwork from being used to pay creditors.
Syncora also assailed the mediators, including the chief federal judge in Detroit, for developing the compromise. The bond insurer claims the mediators were biased.
Detroit has asked the judge overseeing the bankruptcy to throw out Syncora’s allegations against the mediators.
The case is In re City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).