Detroit obtains commitment for $350 million in financing from Barclays

By Caroline Salls

Pittsburgh, Oct. 11 - City of Detroit emergency manager Kevyn Orr said the city has received a commitment for up to $350 million in senior secured post-bankruptcy financing from Barclays.

According to a Detroit news release, the proceeds of the financing will benefit the city's ongoing restructuring by allowing it to capture an estimated more than $60 million discount on the settlement some pension debt interest rate swap obligations and saving the city tens of millions of dollars of annual debt service.

Detroit said the financing would also give the city additional resources to fund its revitalization and improve the future recoveries of its creditors as part of its restructuring process and providing additional cash for investment in Detroit's delivery of municipal services to its businesses and residents, including blight removal, public safety initiatives and technology infrastructure improvements, the release said.

The city said about $230 million of the financing will be used to exercise termination rights on pension debt interest rate swap obligations. The balance of the financing will be used to advance key investment initiatives aimed at improving basic services to Detroit's residents and businesses and the technology infrastructure of the city's government.

Detroit said it received 16 high-level financing proposals from local and national commercial banks, investment banks and hedge funds, including many of the city's financial creditors.

Financing terms

Interest will be Libor plus 250 basis points with a 1% Libor floor.

The outside maturity date for the financing is 2½ years from the closing date.

The city will be required to pay a commitment fee in connection with the financing.

Detroit said the financing is secured by a pledge of income tax revenues, wagering tax revenues and net cash proceeds from any potential monetization of city assets that exceeds $10 million. Asset monetizations are not required.

Barclays will receive a claim on the borrowing that has priority over all administrative expense claims, all other post-bankruptcy claims and pre-bankruptcy unsecured claims.

Detroit City Council has 10 days to approve or disapprove the proposed financing, and the city said it will also seek approval of the emergency financial assistance loan board.

In an order approving the term sheets, Orr said that, if the council does not approve the financing, it will have seven days to submit an alternative proposal to the loan board "that would yield substantially the same financial result" as the proposed financing.

The loan board would then have 30 days to review both proposals and choose one.

The financing is also subject to approval of the U.S. Bankruptcy Court for the Eastern District of Michigan. Detroit said it plans to file a motion with the court in late October for a hearing in November.

Closing is subject to court approval and the exercise of forbearance agreement termination rights.

Detroit filed bankruptcy on July 18 under Chapter 9 case number 13-53846.

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