Detroit gets $350 mln financing lifeline from Barclays

Reuters

Oct 11 (Reuters) - Barclays Plc will providecash-strapped Detroit with up to $350 million indebtor-in-possession financing in the wake of its municipalbankruptcy filing in July, Detroit's top official said onFriday.

Detroit will use the money for infrastructure investmentsand to terminate interest-rate swap agreements that were notadvantageous for the city, said Kevyn Orr, the city'sstate-appointed emergency manager.

Detroit is the first large U.S. city to seek so-calleddebtor-in-possession (DIP) financing after filing for Chapter 9municipal bankruptcy on July 18. The city said it plans to askfor a November hearing on the financing, which is subject tofederal 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 usedto end swap contracts the city entered into with Bank of AmericaCorp's Merrill Lynch Capital Services and UBS AG in conjunction with debt sold for Detroit's publicpension funds.

Bill Nowling, Orr's spokesman, said the DIP financing wasneeded for the city to execute the swap termination deal withMerrill Lynch and UBS that Detroit asked the bankruptcy court toapprove over the objection of bond insurers, some bondholders,the pension funds and others. He said court mediation with bondand swap insurer Syncora Guarantee Inc, the mainobjector, was continuing.

Without the deal, terminating the swaps could cost anadditional $60 million.

The city would use the rest of the proceeds from the DIPfinancing - about $120 million - to improve public safety andother basic services, remove blighted properties and boosttechnology infrastructure, Orr said.

Detroit has seen its population shrink to about 700,000 from1.8 million in the 1950s, when Detroit's three automakersdominated the industry. In recent years, the city has madeinternational headlines with its urban blight, roaming packs offeral dogs and outdated and sometimes inoperable police and fireequipment.

The financing will be secured with a pledge of Detroit'sincome tax and casino tax revenue and if those funds are notsufficient, "net cash proceeds from any potential monetizationof city assets that exceeds $10 million," according to thestatement.

Nowling said while the deal with Barclays doesn't specify particular city assets, anything that could be potentiallymonetized, including assets at the Detroit Institute of Arts, ison the table.

"We haven't made a decision about selling anything," hesaid.

Barclays will have priority over certain claims - alladministrative expense, post-petition and pre-petition unsecuredclaims. Orr has deemed $11.9 billion owed by the city to itspension funds, bondholders, retirees and others to be unsecureddebt.

The financing will carry the London Interbank Offered Rate(LIBOR) plus 2.5 percent, subject to market fluctuations, andwill have an outside maturity date of 30 months from the closingdate.

The city chose Barclays in a competitive process conductedover the past month that resulted in 16 proposals from financialinstitutions, Orr's statement said. Barclays' proposal wasdeemed "the most advantageous based on structure and pricing,"it added.

Detroit heads to a trial later this month to prove it iseligible for bankruptcy.

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