Detroit bankruptcy judge rejects bid to keep loan terms secret
The judge in Detroit’s bankruptcy case has denied a bid to keep some details of a controversial loan agreement secret.
Judge Steven Rhodes ruled Thursday that the city must disclose all the terms of a proposed loan from the British financial giant Barclays. That loan deal is as complex as it is controversial.
Detroit emergency manager Kevyn Orr wants to borrow $350 million from Barclays, and use the majority of that money--$220 million--to pay off two banks that profited from a bad financial bet (in the form of interest rate swaps) Detroit made on some pension debt a few years ago.
Barclays and the city wanted to keep key aspects of the deal--including the bank’s fees and the loan’s interest rate structure--sealed from the public.
But Judge Rhodes ruled the city must disclose that information under Michigan’s Freedom of Information Act.
“The fact that Barclays for its own competitive reasons wants it to be confidential or thinks that it should be … is really quite irrelevant,” Rhodes said, adding: “It’s even irrelevant that the city may have agreed to keep it confidential.”
Barclays said those details should be kept private for competitive reasons, and that keeping them secret would let Detroit get a better deal on what’s known as debtor-in-possession financing.
Rhodes ruled after a hearing which featured some interesting exchanges between the bench and James Saakvitne, a Barclays investment banker who took the witness stand.
From The Detroit News:
“It’s very important for us to be there to help the city,” Saakvitne told the judge. “Hold on,” Rhodes replied. “What’s very important to you is to make money.” “Yes,” the banker replied. “But I don’t think we necessarily would have chosen to put in a provision that if the court ruled one way we would walk away from our commitment.” Rhodes noted that disclosing the information may lead to lower costs for Barclays’ future borrowers. “They could end up with a lower cost, yes,” Saakvitne testified. “The concern is if going forward on a municipal (debtor-in-possession) that if all fees are going to be made public that may put a real chill in the market.” “So much for being willing to help the city, huh?” Rhodes replied before dismissing Saakvitne from the witness stand.
Rhodes must ultimately sign off on the loan deal, too. He’s set a December date for a hearing on the matter.
Orr has said the loan financing is critical to pay off the bad swaps deal, and to help re-invest in city services during bankruptcy.
But critics say it’s a bad deal designed to pay off banks while Orr proposes that unsecured creditors, including pensioners, take much steeper losses.
Rhodes must still rule on whether Detroit is even eligible for Chapter 9 bankruptcy protection. An eligibility trial concluded this week, and Rhodes could issue a ruling any day.