Detroit — The City Council plans to decide by Friday on the viability of an alternative proposal to a $350 million loan for bankruptcy financing secured by the city’s emergency manager.
The council made the decision Wednesday after convening a special meeting to discuss the potential alternative to Emergency Manager Kevyn Orr’s agreement with Barclays, but said it was still awaiting terms from the out-of-state organization.
The panel members may also vote Friday to send a resolution to U.S. Bankruptcy Judge Steven Rhodes expressing their disapproval of Orr’s plan. But the late Monday counterplan brought forward by the undisclosed entity led the council to postpone action on the resolution to allow time to research the offer.
Under the state’s emergency manager law, the council was provided 10 days to accept or reject Orr’s deal. Members then had seven days to present to the state’s local emergency loan board a competing plan that has the same financial impact.
The plan is due Monday.
“There is no denying this is a tight timeline,” President Saunteel Jenkins said after the meeting.
The council initially hoped to reach a consensus Wednesday as the city’s bankruptcy eligibility trial began in federal court. It’s not clear if the financing deal would be raised in the trial, but it will ultimately have to be approved by Rhodes.
Jenkins said the council is continuing its negotiations with the unnamed firm, which previously submitted a plan to Orr for consideration. So far, she added, the terms are similar to what’s proposed in the Barclays deal.
“There are some slight differences, but what they are offering would bring the same end result,” she said, noting the council is seeking a more favorable loan term, interest rates and default provisions. “If it’s a better deal it would cost the city less money.”
Prior to setting the Friday meeting, the council’s Legislative Policy Division director, David Whitaker, said staff had a conference with the undisclosed investment group Tuesday.
Council member Kenneth Cockrel Jr., who participated in the talks, said the council should continue to explore the proposal but doesn’t have enough information to accept it yet.
“While I did feel the discussion was actually useful, could we really put something together that’s credible in the short period of time we have?” he said.
The council’s policy staff was contacted Monday about the proposal after members unanimously rejected a loan agreement Orr had forged with Barclays. The agreement, announced by Orr earlier in the month, would be used to pay off pension-related debt and finance improvement of government services while Detroit is in bankruptcy.
Orr’s spokesman, Bill Nowling, has said the deal would result in a lower interest rate for debt, free up casino revenue and provide cash to improve city services. Under the current swaps agreement, he added, the city does not get any casino revenue until after the banks take their cut. Under Orr’s agreement, the casino money stays with the city and is used as security on the loan, but it’s not used to pay the loan.
The funds, about $120 million, could instead be invested in technology infrastructure at City Hall and improving city services for residents and businesses.