State board OKs $1B in Detroit loans
Lansing — The state loan board helped put in place another key part of Detroit’s plan to escape bankruptcy Friday by approving $1 billion in loans for Michigan’s largest city, including $325 million in exit financing.
The most significant among four transactions is $325 million in exit financing that Detroit Bankruptcy Judge Steven Rhodes said he requires before allowing the city to exit the bankruptcy process.
The board — three members of Gov. Rick Snyder’s administration — also approved the transfer of 301 parcels of city-owned property to the Michigan Lank Bank Transfer Authority. The property lies within the foot print of the New International Trade Crossing, Snyder’s proposed bridge to Canada that is mostly being financed by the Canadian government, and is earmarked for that project.
The transfer will generate $1.4 million for the city.
The state board’s approval came after the Detroit City Council earlier this month unanimously rejected the transfer to fight for a better deal. But language for the city’s proposed “Neighborhood Development Agreement” wasn’t hammered out by Friday’s meeting of the loan board.
Detroit Corporate Counsel Melvin “Butch” Hollowell issued a statement late Thursday saying, “The Detroit City Council understands that it has not submitted a viable alternative proposal.
“However, the mayor and City Council have collaboratively discussed a Neighborhood Development Agreement and believe that they can work with state officials to achieve a result that is in the best interests of the people of the City of Detroit.”
The $325 million in exit financing will help Detroit recover its credit rating because it will be rated by the Moody’s, Standard & Poor’s and Fitch ratings agencies. The debt is secured by future city income taxes, and $25 million of it will be set aside to provide Detroit with a rainy day fund.
“It’s an accomplishment that the city has the opportunity to structure the exit financing in this manner, and it offers the city an opportunity to re-introduce itself to the financial markets,” said James Doak, managing director of Miller Buckfire & Co., who worked with Barclays to provide the financing.
Tom Saxton, the state’s chief deputy treasurer, noted the Detroit council approved each of the loans.
“A number of the council members clearly demonstrated to me that they were on board with the financing,” Saxton said. “This provides a road map for the city to access the capital markets again.”
The board also approved $55 million in limited tax general obligation bonds that will settle $163.5 million of debt to the city’s bondholders.
Of $632 million in financial recovery bonds approved, $460 million will be sold by the city to raise cash for retiree health care claims.
The board also approved $88.4 million in class-C notes that will be issued Syncora Guarantee and other creditors as part of a negotiated deal to settle the city’s debts.
The moves come a day after Emergency Manager Kevyn Orr, Mayor Mike Duggan and the council negotiated an agreement for Orr to let the mayor and council resume running the city while Orr stays on to see the completion of the city’s departure from bankruptcy. The council and mayor could have voted to oust Orr by Saturday, but instead negotiated a power shift in exchange for letting Orr stay on.