Reuters: Bankruptcy News: UPDATE 1-Detroit gets $350 mln financing lifeline from Barclays

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UPDATE 1-Detroit gets $350 mln financing lifeline from Barclays Oct 11th 2013, 21:00 Share this Email Print Reprints Fri Oct 11, 2013 5:00pm EDT Oct 11 (Reuters) - Barclays will provide cash-strapped Detroit with up to $350 million in debtor-in-possession financing in the wake of its municipal bankruptcy filing in July, Detroit's top official said on Friday. Kevyn Orr, the city's state-appointed emergency manager, said the funds will be used for infrastructure investments and will allow Detroit to terminate interest-rate swap agreements at a discount estimated at more than $60 million. Detroit is the first large U.S. city to seek so-called debtor-in-possession (DIP) financing after filing for Chapter 9 municipal bankruptcy on July 18. The city said it plans to ask for a November hearing on the financing, which is subject to federal bankruptcy court approval. Detroit, with at least $18 billion of debt and obligations, is the largest U.S. city to ever have filed for bankruptcy. About $230 million of the financing's proceeds will be used to end swap contracts the city entered into with Merrill Lynch Capital Services and UBS AG in conjunction with debt sold for Detroit's public pension funds. Orr had asked the bankruptcy court to approve a deal allowing the city to terminate the swaps and free up casino tax revenue over the objection of bond insurers, some bondholders, the pension funds and others. The city would use the rest of the proceeds - about $120 million - to improve public safety and other basic services, remove blighted properties and boost technology infrastructure, Orr said. Detroit has seen its population shrink to about 700,000 from 1.8 million in the 1950s, when Detroit's three automakers dominated the industry. In recent years, the city has made international headlines with its urban blight, roaming packs of feral dogs and outdated and sometimes inoperable police and fire equipment. The financing will be secured with a pledge of Detroit's income tax and casino tax revenue and "net cash proceeds from any potential monetization of city assets that exceeds $10 million," according to the statement. Barclays will have priority over certain claims - all administrative expense, post-petition and pre-petition unsecured claims. The financing will carry the London Interbank Offered Rate (LIBOR) plus 2.5 percent and will have an outside maturity date of 30 months from the closing date. The city chose Barclays in a competitive process conducted over the past month that resulted in 16 proposals from financial institutions, Orr's statement said. Barclays' proposal was deemed "the most advantageous based on structure and pricing," it added. Detroit heads to a trial later this month to prove it is eligible for bankruptcy. Link this Share this Digg this Email Reprints

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