Local 4 Business Editor Rod Meloni is in court Tuesday as a trial begins over whether Detroit can borrow $350 million with Barclays of London.
Court got off to a little bit of a late start as the result of the snowy weather.
Judge Steven Rhodes is hearing a trial, the first of its kind in this case, regarding the $350 Million “forbearance” agreement with Barclays of London.
This money is a loan the city and emergency manager Kevyn Orr want to use to pay off Bank of America and UBS to end the $1.44 billion “swaps” agreement former mayor and current federal prison convict Kwame Kilpatrick used to prop up the city’s pension funds in 2005.
The city proposes using casino revenues and some tax revenue to pay this loan.
Barclays stands to make nearly $5 million just for handling this deal, plus a 1.25% of the overall loan value.
Local 4 News first reported the details of this agreement last July that is ultimately intended to free up $12 to $15 million a month of Detroit casino revenues now locked up in the swaps deal.
Orr intends to use the freed up cash to rebuild the city starting with updating the city’s antiquated computer systems.
The city is represented by the Jones Day law firm and its representative Corinne Ball, who did the opening argument, saying this deal is vitally important to the city’s restructuring and is the right answer to clear bad debt off of the city’s books.
There was no opening by the objector union and pension fund attorneys but they did object to the testimony of the first witness Gurauv Malhotra an Ernst and Young financial analyst who for the past two years has been advising the city on its cash flow position.
He was called to the stand a number of attorneys attempted to prevent him from testifying saying he was not qualified to testify to the city’s cash flow issues. Another was concerned there is no relevance to his testimony. Rhodes shot down the objections and Malhotra is not testifying about the city’s financial issues regarding the “swaps” deal.
Rhodes is anxious to expedite the hearings and is asking attorneys to keep their arguments away from digging deeply into why and how the city spends its money. He did ask the Jones Day attorneys to also help him understand as they build their case.
“I want to understand, as best as you can make me understand, the considerations that led to the agreement at 75% as opposed to some other percentage," he said.
He wants to know why the city of Detroit agreed to make this deal that would settle the “swaps” deal for 75 cents on the dollar. He wants to know why that number is not less.
Objector unions and pension funds are saying by allowing the city to spend this $350 million this way they will receive less for their claims. This will be a constant theme throughout these hearings because there are a lot of parties fighting over a very small pot of money.
Malhotra remains on the witness stand and is explaining the fact that the city defaulted on the original “swaps” deal, it needs to remove the massive burden the original deal placed on the city.
Malhotra testified the city would likely run out of cash by the end of the year and have another $100 million in debt by next summer if this deal is not allowed.
Orr is expected to testify later this afternoon.
The judge is keeping time on the testimony and the trial. He just announced the city now has 319 minutes remaining… the objectors get 477 minutes.
We are now in recess for 15 minutes.