City of Detroit Receives Commitment for up to $350 Million of Post-Petition Financing

DETROIT, Oct. 11, 2013 /PRNewswire/ -- Kevyn Orr, the Emergency Manager for the City of Detroit ("Detroit" or the "City"), today announced that the City has received a commitment for senior secured post-petition financing of up to $350 million from Barclays.  The proceeds of the financing will benefit the ongoing restructuring of Detroit in several ways:

• Allow the City to capture a large discount – estimated to be more than $60 million – on the settlement of certain pension debt interest rate swap obligations;
• Save the City tens of millions of dollars of annual debt service;
• Afford the City additional resources to fund its revitalization and improve the future recoveries of its creditors, including retirees, as part of its restructuring process;
• Provide additional cash for investment in Detroit's delivery of municipal services to its businesses and 700,000 residents, including blight removal, public safety initiatives and technology infrastructure improvements.

"Today is another important step in the continued revitalization of Detroit," Orr said.  "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.  We are very encouraged by the level of interest we received from the financial community, its implicit support of the work we are doing and their desire to participate in the ongoing recovery of one of America's great and vibrant cities."

Approximately $230 million of the post-petition financing will be used to exercise termination rights on certain pension debt interest rate swap obligations.  The balance of the financing – approximately $120 million – will be used to advance certain key investment initiatives of the City aimed at improving basic services to Detroit's residents and businesses and the technology infrastructure of the City's government.

The City, in conjunction with its investment banker, Miller Buckfire & Co., and legal counsel, Jones Day, conducted a highly competitive financing process over the past month, contacting more than 50 institutions with experience in municipal or special credit situations.  Detroit received 16 high-level financing proposals from leading financial institutions such as local and national commercial banks, investment banks and hedge funds, among which were many of the City's financial creditors.  After extensive review and negotiation between the City and prospective lenders, the Emergency Manager, in consultation with the City's advisors, chose the Barclays proposal as the most advantageous based on structure and pricing.

Terms of the Financing

The financing commitment from Barclays in the amount of up to $350 million carries an interest rate of London Interbank Offered Rate (LIBOR) + 2.5% (with a 1% LIBOR floor), subject to market flex.  The outside maturity date for the financing is two years and six months from the closing date, with a commitment fee in connection with the financing due from the City.  The financing is secured by a pledge of income tax revenues, wagering tax revenues and net cash proceeds from any potential monetization of City assets that exceeds $10 million.  Asset monetizations are not required.  Barclays will be given a claim on the borrowing that has priority over all administrative expense claims, all other post-petition claims, and prepetition unsecured claims.

Approval Process and Closing Conditions

The financing will be issued as Financial Recovery Bonds under Section 36a of the Home Rule City Act.  As required under Michigan Public Act 436 of 2012, the proposed financing has been submitted to the Detroit City Council, which has 10 days to approve or disapprove the financing.  The City also will seek the approval of the emergency financial assistance loan board.  Finally, the financing will be subject to the approval of the United States Bankruptcy Court for the Eastern District of Michigan.  The City intends to file a motion with the Court in late October for a hearing in November.  The closing of the financing commitment is subject to, among other conditions, the entry of an order of relief in the bankruptcy case, exercise of termination rights under Forbearance Agreement, and bankruptcy court approval of the financing transaction.

SOURCE City of Detroit