Detroit seeking $350 million financing to terminate swaps deal

Reuters News
Posted: Aug 29, 2013 11:48 AM
Detroit seeking $350 million financing to terminate swaps deal

By Bernie Woodall

DETROIT (Reuters) - Detroit, which made the largest Chapter 9 municipal bankruptcy filing in U.S. history, will on Thursday issue requests for proposals for $350 million in financing, the city emergency manager's office said.

Detroit would be the first large U.S. city to seek so-called debtor-in-possession financing after asking for bankruptcy court protection.

The city plans to use $250 million to terminate a complicated swaps deal related to previous bonds issued to finance pension debt, said Bill Nowling, press secretary for Detroit's state-appointed emergency manager, Kevyn Orr.

About $100 million would "provide the city with adequate liquidity throughout the restructuring case to start reinvesting in Detroit today," Nowling said in an e-mail to Reuters.

Nowling also said Orr plans to use proceeds from the financing to invest in "quality of life" improvements for Detroit's nearly 700,000 residents.

The city in 1950 had 1.8 million people at a time when the three automakers that still call the Detroit area home dominated the auto industry. But in recent years the city that has accumulated $18 billion in debt and has made international headlines with its urban blight, roaming packs of feral dogs and outdated and sometimes inoperable police and fire equipment.

The termination of the swaps payment would be made to Merrill Lynch, a unit of Bank of America, said Nowling.

The state's emergency manager law grants to Orr most of the powers once afforded to the city's mayor and city council, including responsibility for the city's finances.

"The city is contacting a range of financial institutions, commercial banks, investment banks and hedge funds," Nowling said in an email to Reuters.

"The materials and our communications with potential lenders will be confidential, although any financing approval process will be very transparent, going through the (bankruptcy) court's and the city's processes," Nowling added in the email response to Reuters' questions.

On Wednesday, U.S. Bankruptcy Judge Steven Rhodes, who is overseeing Detroit's bankruptcy petition, ruled that Detroit can have access to some $15 million in monthly tax revenue payments from the city's three casinos.

Rhodes' ruling rebuffed an effort by Syncora Guarantee Inc, insurer to bondholders, which had sought to block the city's access to the casino tax revenue.

The Detroit News, in an interview with Orr published on Thursday, said Orr wanted to use the casino tax revenue to back the borrowing. In the interview, Orr first publicly mentioned his intent to seek the funding that the city will formally request later on Thursday.

Detroit is the largest U.S. city, but may not be the first, to file for debtor-in-possession financing after filing for bankruptcy protection.

The only example that turned up in a search of court records by Reuters was Prichard, an Alabama city with about 30,000 residents, which received court approval for a loan in 2000 during the first of its two recent bankruptcies. It was unclear from court records the size of the loan, but press reports indicate the city was seeking around $2 million before its bankruptcy.

(Additional reporting by Tom Hals. Editing by David Greising and Douglas Royalty)