Detroit— The City Council said Friday it will not offer a competing bankruptcy financing plan from an unnamed lender that initially asked for Detroit Institute of Arts artwork to be used as collateral.
The decision came after members this week unanimously voted to reject a $350 million loan from Barclays secured by Emergency Manger Kevyn Orr.They had until Monday to send a counterplan to the state’s Emergency Loan Board.
The alternative deal is “better than what was proposed (by Orr),” but is “still bad for the city,” President Saunteel Jenkins said.
The lack of a council alternative means the Barclays loan will move forward, since it is the only option the state loan board will consider. But U.S. Bankruptcy Judge Steven Rhodes, who is presiding over the city’s bankruptcy case, will ultimately decide the fate of the loan agreement.
At a special meeting Wednesday, the council said it was negotiating the terms of the counter offer brought by a national investment firm. Two firms were in the talks, but only one was an investment firm, Jenkins said. The other group is involved in the city’s bankruptcy, she said.
Jenkins said the initial loan proposal called for unspecified DIA art to be used as collateral. The firm then amended the request, asking instead for income and casino tax revenues — similar to the Barclays’ plan, she said.
“There was still some concern about the collateral that was being used in the alternative proposal,” Jenkins said. “We want to know this is in the best interest of the city. There were other long-term impacts that we didn’t feel confident would improve the city’s financial status.”
The council on Friday outlined its worries in a four-page resolution that’s being submitted to Rhodes. In the resolution, the council is expressing its disapproval of Orr’s proposed Barclays’ agreement and asking Rhodes to rule whether it’s permissible for the city to use casino taxes as collateral in this type of deal.
“The proposed Debtor-in-Possession Financing transaction is an extremely complex deal on a number of fronts that does not seem to be in the best interest of the city,” the resolution reads.
Under the state’s emergency manager law, the council was provided 10 days to accept or reject Orr’s contract with Barclays. The six-member panel then was given seven more days to present a competing plan to the loan board with the same or better financial impact.
Jenkins said the timetable in the law doesn’t allow for an informed decision.
“Experts couldn’t craft a deal like this in seven days,” Jenkins said.
The terms in the new offer were similar to Orr’s deal. The council was seeking a more favorable loan term, interest rates and default provisions, Jenkins has said.
The Barclays’ loan would be used to pay off pension-related debt and finance improvement of services while Detroit is in bankruptcy. Orr’s deal is expected to result in a lower interest rate for debt, free up casino revenue and cash to improve city services.
Jenkins added the council has “no concrete terms” on how the quality of life funds will be spent.