DETROIT — Cash-strapped Detroit has secured a $350 million loan to help pay off some of its massive pension debt, state-appointed emergency manager Kevyn Orr said today.
About $230 million in financing from Barclays would be used to fully pay off a complicated pension debt deal involving two major creditors. The rest would be used to improve basic city services and city government technology infrastructure.
The loan would be secured with pledges of casino and income tax revenue, and proceeds from the sale of city-owned of assets that top $10 million.
“We said at the outset of this process that we are committed to improving the financial condition of Detroit and the lives of its 700,000 citizens, and our team worked tirelessly to bring this significant post-petition financing to bear,” Orr said today in a release.
The deal still has to be approved by federal Judge Steven Rhodes, who is overseeing the bankruptcy. The city intends to make that request to Rhodes later this month, Orr’s office said.
Orr’s July 18 bankruptcy filing is the largest by a U.S. city. He has said Detroit’s $18 billion or more debt includes underfunded obligations of about $3.5 billion for pensions and $5.7 billion for retiree health coverage.
In 2009, the city pledged its casino tax revenue as collateral to avoid defaulting on past pension debt payments. The swaps allowed Detroit to get fixed interest rates on pension bonds with UBS and Bank of America.
Orr wants Rhodes to approve a settlement in which Detroit would pay UBS and Bank of America as little as 75 cents on the dollar on $340 million in debt.
The Barclays loan would be used to pay off UBS and Bank of America, while saving the city more than $60 million on the total amount owed on the swaps.
But New York-based bond debt insurer Syncora Guarantee says it will lose money if that deal is approved. Syncora has been fighting the settlement so it can keep up to $15 million in the casino tax revenue each month in a bank-held trust.
Orr has argued that the casino money is needed to help keep the city running and pay for some services, and Rhodes ruled in August it can’t be withheld during the bankruptcy request and Syncora can’t object to the city’s proposal involving UBS and Bank of America.
The Barclays proposal also has to go before the City Council for approval, but Michigan’s emergency manager law gives Orr final say over all financial decisions.
Orr said he also will seek approval for the deal from the state’s emergency financial assistance loan board.
The financing will be issued as financial recovery bonds.