CHICAGO — Negotiations heated up on several fronts in Detroit Friday as the bankrupt city scrambled to nail down deals ahead of a self-imposed deadline to craft a detailed bankruptcy plan.
On Thursday, the city presented creditors with a 99-page draft plan of adjustment.
The plan is a key milestone in the Chapter 9 case. The circulated draft elevates unsecured pension debt over unsecured bond debt, and proposed paying pensioners roughly twice as much as bondholders.
Detroit faced two key deadlines Friday. A crucial $120 million debtor-in-possession loan with Barclays was set to expire, and the city demanded that its interest-rate swap counterparties present an acceptable offer to terminate the swaps, also by the end the day. The city had not announced by 5 p.m. Friday any new settlements or an agreement with Barclays.
But the city did late Friday
The DIP loan and swaps settlement are key to a final, more detailed bankruptcy plan, which the city hopes to file by Feb. 17.
Detroit emergency manager Kevyn Orr has described the $120 million DIP loan, which was inked last October, as crucial to the city's restructuring. Proceeds from the deal were to be used for city services.
A spokesman for Orr said the city was talking with other banks and hedge funds for alternative loans while still negotiating with Barclays. Spokesman Bill Nowling said Detroit isn't asking for the return of $4 million of fees it had paid to Barclays "yet."
The city was talking with three financial institutions who had responded, along with Barclays, to a request for qualifications for a DIP loan last September, he said.
Nowling would not detail the disagreements with Barclays. Barclays declined to comment.
The original deal called for a $350 million DIP loan, which included the $120 million and an estimated $230 million loan that was to be used to pay off the city's interest-rate swap counterparties.
The size of the original DIP deal was ultimately trimmed to $120 million after U.S. Bankruptcy Judge Steven Rhodes rejected a $165 million settlement with the swap counterparties, UBS AG and Merrill Lynch Capital Services, saying terms of the deal were too rich.
The city has been negotiating with the counterparties since Rhodes' ruling, and last week's draft plan of adjustment said the city, for the first time, would treat the debt as unsecured and under dispute. The city said it reserves the right to avoid any lien — such as the casino revenue — securing the swap claim.
Orr gave the banks until the end of the day Friday to come up with an alternative deal that would acceptable to the city and Rhodes, Nowling said.
"We are awaiting an answer," Nowling said in an email Friday.
Creditors, meanwhile, continued to digest the city's plan of adjustment. Under the plan, Detroit wants to pay its pensioners more than its general obligation bondholders.
Retirees would get around between 40 to 50 cents on the dollar in the proposed adjustment plan the bankrupt city circulated to creditors, while GO bondholders would get between 40 and 20 cents on the dollar, according to various news reports.
The New York Times, which also reviewed the plan, said that pension certificate holders would get around 10% on their claims.
Creditors may get an additional $339 million if the city is able to close a deal to lease for 40 years its water and sewer system. The deal calls for the suburbs to pay $47 million a year for 40 years for a total of $1.88 billion, reports said. The plan depends on water and sewer bondholders agreeing to waive their call protections so the new authority can refinance the bonds at a savings.
The pot of city money reportedly also includes roughly $700 million in a plan raised by a group of foundations, the state, and the Detroit Institute of Arts that have pledged the money in exchange for the protection of the city's art.
The plan is still being fleshed out under the oversight of the bankruptcy court mediators.
Also Friday, the court mediators announced an agreement between the city and its retirees over the proposed treatment of health care benefits through 2014. The deal ends a lawsuit brought against the city by retirees and unions to try to block Orr's plan to impose steep cuts.
He wanted to shift older retirees to Medicare and give employees under 65 a $125 monthly stipend that they could use to buy insurance on the new insurance exchange.
"The settlement was reached after intensive bargaining sessions over the past few weeks, sessions in which the interest of all parties were fully and vigorously represented and all issues robustly negotiated," the mediators said in a statement.
A court hearing on the lawsuit scheduled for Monday was canceled.
