$350 million bank loan on the table for Detroit

$350 million on the table for Detroit, judge needed to approve Barclay's loan

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DETROIT (WJBK) -

On Tuesday, the city of Detroit asked a federal judge to approve its deal to borrow up to $350 million to help the city pay off some of its debts and to provide city services.

In a 264-page filing, London-based Barclays, says it is willing to invest in the city as it deems the decision to loan the money as "sound business judgment and should be approved."

It's up to U.S. Bankruptcy Judge Steven Rhodes to approve this deal.

A large chunk of the money, $200-million, would be used to pay off a high interest loan from 2005 and this 'swap move' is expected to save the city $35 million a year.

$125 million would be used to improve quality of life issues.  This include fixing up city blight and providing funds to help the city's struggling police and fire departments.   Some money may be spent on technology upgrades.

Why does Barclays want to loan the money to a bankrupt city?  Fox 2's Charlie Langton says banks do this to make money.  The loan will carry a minimum interest rate of 3.5% and according the deal cut last month, Barclay's will receive status a "super creditor."  This means the bank would get priority over unsecured creditors.

That also means other creditors that the city of Detroit owes money to will likely object to this deal, including the city's largest employee union, Michigan Council 25 of AFSCME. 

The fees in this deal are being kept secret for now.

Exactly when Judge Rhodes will rule on this deal is not known, but a decision should come in the next couple of weeks.

 

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