Detroit Emergency Manager Kevyn Orr (David Coates / The Detroit News)
Detroit Emergency Manager Kevyn Orr said Friday the city has secured a $350 million loan that will be used to pay off a pension related-debt and finance improvement of government services while the city is in bankruptcy.
Orr said the city is securing the financing from Barclays with income and casino tax revenues as well as cash proceeds from “any potential monetization of City assets that exceeds $10 million,” according to a news release.
Under the terms of the secured loan, there’s “no requirement” that the city sell assets, Orr spokesman Bill Nowling said.
Since Detroit filed for bankruptcy in July, Orr has been trying to secure the post-petition financing to end a complicated interest rate swap agreement with UBS AG and Bank of America that was tied to $1.44 billion the city borrowed in 2005-2006 to pump up its ailing pension fund.
Barclays is loaning the city the $350 million with a floating interest rate of a minimum of 3.5 percent, according to the terms of the agreement announced Friday.
The emergency manager’s office said Friday about $230 million would be set aside to terminate the swap agreement at a discount of $60 million, based on their value, which is determined by floating interest rates.
Orr’s proposal to give UBS and Bank of America between 72 and 80 cents on the dollar in an early bankruptcy settlement has been highly contested by retirees, the city’s pension funds and pension debt insurers vying to be repaid money the city owes them. Detroit listed more than $18 billion in debts and liabilities in its bankruptcy case.
The loan is needed to get U.S. Bankruptcy Judge Steven Rhodes’ approval of the proposed settlement with the two big banks, Nowling said.
“We need to have this in place in order to get that,” Nowling said. “We’re confident that we’ll prevail on that.”
The remaining $120 million will be spent on technology infrastructure at City Hall, such as upgrading Detroit’s archaic property tax collections, Nowling said, as well as improving city services for residents and business.
“Today is another important step in the continued revitalization of Detroit,” Orr said Friday in a statement. “We said at the outset of this process that we are committed to improving the financial condition of Detroit and the lives of its 700,000 citizens, and our team worked tirelessly to bring this significant post-petition financing to bear.”