CHICAGO — Detroit has released a few details on an exit financing deal of as much as $300 million that the city says is key to the city's post-bankruptcy recovery.
The borrowing will be structured as financial recovery bonds and backed by a first lien on a certain portion of the city's income tax revenue, according to a brief the city filed on the federal bankruptcy web site.
The size is expected to be between $250 million and $300 million. Of that, $200 million will be tax-exempt, according to the filing. The bonds will mature in 11 to 15 years.
Detroit has argued that the exit financing is crucial to its ability to recovery by investing in the so-called reinvestment and revitalization initiatives. A municipal finance expert hired by the bankruptcy court has also said that the financing is key to the city's ability to maintain services and liquidity after its Chapter 9 is completed.
In addition to financing the reinvestment initiatives, the city wants to use the proceeds to pay off a $120 million debtor-in-possession financing it obtained earlier this year from Barclays, pay the $85 million it owes to interest-rate swaps counterparties, and possibly pay off its limited-tax general obligation bondholders.
In a court hearing last week, Detroit's Jones Day Attorney Heather Lennox told Federal Judge Steven Rhodes that the city hopes to choose a lead lender by this week.
The city received "quite a few" responses to a July request for proposals from banks interested in providing the financing, Lennox said. Officials narrowed the responses down to a smaller group, held interviews with lenders last week. That gives the city time to seek bankruptcy approval of the deal ahead of the Aug. 21 trial date, said Lennox.
The bonds will be issued through the Michigan Finance Authority.
