DETROIT – Local 4 News has learned the details of that "important settlement" Detroit Emergency Manager Kevyn Orr struck with some of the city's biggest creditors.
Today, we have uncovered the details. It is with Bank of America, Merrill Lynch and UBS AG. They held the paper on what are called "swaps" for the city's pension funds.
These swaps are essentially a set of loans the city took starting in 2005 at the behest of Kwame Kilpatrick that ran in the neighborhood of one billion dollars to try and shore up the city's underfunded pensions.
Orr's deal with Merrill Lynch and UBS is for $340 million the city still owed on the original loans.
While these are "secured creditors" who are due 100 percent of their money bankruptcy or no, they decided it's best to go to the barber shop for a haircut. The banks have agreed to take a 25 percent haircut on that $340 million balance. They will now only get $255 million dollars.
Yes, you guessed it.
The City of Detroit will have to borrow that $255 million and will do so over a lengthy period of time. And you wonder how a city virtually broke can get a loan of that size.
Orr's spokesman Bill Nowling says the city has been approached by a number of banks that do what are called in the bankruptcy arena as "debtor in possession financing."
They are willing to take the risk and finance deals like this one with broke or nearly broke entities.
Orr's office is convinced it can get the long term loan it will need and in fact will have to have in order to close in the next few days.
This is truly an "important deal."
The reason is whether Detroit ends up in Chapter 9 Municipal bankruptcy or not [this blog has been predicting a Chapter 9 for more than a year now] it allows Detroit access to its own, precious tax money flowing from its casinos.
By striking this deal, taking out a much smaller long term loan, it frees up roughly $120 million a year.
Detroit desperately needs this kind of money if it is to restructure either with or without a bankruptcy.
Is it merely coincidence that Orr's 130+ page restructuring document calls for spending $120 million a year over ten years to restructure the city? Likely it is not. It is apparent this was the "important settlement" Orr's had his eyes on from the day he walked in the City/County Building.
How many streetlights or ambulances or new fire trucks can this kind of cash buy?
How many police officers can you put back on the street or firefighters in fire houses?
That is what Orr is counting on.
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