CHICAGO — Six months after first announcing a deal, bankrupt Detroit is still struggling to secure a key debtor-in-possession loan with Barclays.
The city on March 6 filed a request asking U.S. Bankruptcy Judge Steven Rhodes to approve the $120 million loan with Barclays. It's the latest in a series of proposed loans from the bank, now smaller in size — down from $350 million — and using new collateral, among other changes.
Several major creditors, including a group of European banks, a bond insurer and Detroit's two retirement systems, quickly challenged the loan in new court briefs filed Thursday and Friday.
The creditors argue that the city's latest court filings lack important information about the new loan, including its interest rates and other terms.
The Detroit City Council approved the deal by a vote of 6-3 late Friday. A vote scheduled for earlier Friday was postponed after the council complained it had received insufficient information.
The council's approval is not required for the loan. Rhodes and the state's emergency loan board both need to sign off on it. Detroit emergency manager Kevyn Orr says the loan is crucial to the city's recovery because it will provide initial financing for badly needed service upgrades.
The European banks, which hold Detroit's pension certificates, joined by Syncora Guarantee Inc. as well as the city's retirement systems, asked the court to force the city to provide more information about the loan, including fees and costs, the interest rate, whether it's subject to market-flex provisions and whether the Detroit sought alternate bids.
"The city cannot implicitly rely on its investigation last August and September that led to Barclays being selected as a lender of $350 million," the creditors argue in the filing.
The challengers also note that Barclays agreed to reduce by $1 million in its initial fee of $4.35 million, which the city already paid to the bank, in light of the loan's reduced size. But "this commitment fee is actually an even larger percentage of the financing's principal balance, which matures only five months from now," the creditors argue.
"The city should be required to seek authorization of such new loans by filing a new motion, providing creditors and parties in interest with all of the material terms of the new loan and a complete set of the loan documents," their objection said.
The terms of the deal call for the city to pay an interest rate based on the London Interbank Offered Rate plus 3.5%, with 3% market flex built in. Barclays plans to resell the debt after the deal closes.
The interest-rate and market-flex information was not included in the city's court documents, and was available to the press only from Orr's spokesman.
Detroit first reached an agreement with Barclays last October, for a $350 million DIP loan that would have financed the service upgrades as well as a termination payment on interest-rate swaps.
Rhodes in January rejected the swaps settlement and approved the $120 million conditionally, warning that the city needs to be cautious about pledging its casino revenues. Rhodes' ruling sent Detroit and Barclays back to the negotiating table.
The new deal drops a pledge of casino revenues and instead pledges income taxes and proceeds from future asset sales.
Along with Syncora, the banks filing the motion are: Hypothekenbank Frankfurt AG; Hypothekenbank Frankfurt International SA; Erste Europaische Pfandbrief-und Kommunalkreditbank Aktiengesellschaft in Luxemburg SA; FMS Wertmanagement AorR; and Wilmington Trust, NA.