Detroit to pay creditors, then boost services
Detroit will immediately borrow $275 million and pay off creditors with some of the cash, but it may take a while for residents to see improvements in the wake of a judge's approval Friday of the city's $7 billion debt-cutting plan.
City and legal experts offered a preview of the first few weeks of life in post-bankrupt Detroit. The first few moves involve borrowing so the city can pay off financial creditors and close on the so-called "grand bargain" deal that will place Detroit's art collection in a trust.
City leaders could learn Monday when Detroit will officially exit bankruptcy court. The city wants to be out by Thanksgiving, but it could take 30 days for lawyers to finalize the exit financing and wrap up procedural matters, a source told The News.
At noon Monday, U.S. Bankruptcy Judge Steven Rhodes will meet with the city's legal team and could let Detroit know when it can start implementing a plan to shed debt and spend $1.7 billion tearing down houses, installing new computer technology and buying police cars and fire trucks.
Also Monday, Rhodes will address whether the legal fees charged by the city's army of lawyers and professionals are reasonable. The bill tops $140 million.
Rhodes wants to set up a mediation process before deciding whether he agrees with his appointed fee examiner that the bills are reasonable.
Typically, there is a 14-day waiting period after a judge approves a bankruptcy plan so objectors can file appeals. Detroit has asked Rhodes to waive the waiting period.
"You never know, but they've settled with the majority of the objecting creditors, so the argument is better for the city that the plan should become effective immediately," Bloomfield Hills bankruptcy attorney Douglas Bernstein said.
If anyone appeals — such as retirees or other individual objectors — they can ask Rhodes to temporarily prevent the city from implementing the bankruptcy plan. Bernstein considers that an unlikely scenario.
He said an initial focus will be closing on the grand bargain. Several regional and national foundations have pledged $366 million toward shoring up the city's pension funds in exchange for shielding the art; the DIA has pledged to raise $100 million over two decades to buy its independence from city government.
"Everyone wants to get that done as soon as possible," Bernstein said.
Once Detroit is allowed to implement the plan, the city will borrow $275 million from Barclays Capital Inc. The city will use the money to pay off certain bondholders and banks that had claims in Detroit's bankruptcy and $120 million will go toward repaying a loan issued after Detroit filed bankruptcy.
Part of the money will be spent on city services and fighting blight, city spokesman Bill Nowling said.
"I'm assuming some of that will start right away," Nowling said.
The city should have greater access to loans once it exits bankruptcy, the city's investment banker Kenneth Buckfire said in a report.
"Upon consummation of the city's plan of adjustment, the city will have addressed and eliminated significant liabilities," Buckfire wrote. "This, in turn, will facilitate the city's ability to access the capital markets."