DETROIT--The city of Detroit will be able to borrow $120 million
to combat crime and blight after a federal judge Wednesday approved
the municipality's first fundraising since filing for bankruptcy
protection.
U.S. Bankruptcy Judge Steven Rhodes said Wednesday he approved
the city's borrowing from Barclays Capital, a subsidiary of
Barclays PLC, to buy new police and firefighting vehicles among
other purchases in the midst of its bankruptcy case because of the
urgent need to improve city services. Detroit "is not providing the
basic services to meet the basic needs of its citizens," the judge
said.
Last July, Detroit became the largest U.S. city to seek Chapter
9 bankruptcy protection, with the aim of restructuring more than
$18 billion in long-term obligations.
The city is backing up the borrowing through income-tax revenue
and the future sale of assets. Creditors had questioned the need
for a new loan in a city where risky borrowing was seen as a
driving force behind the bankruptcy.
Earlier this week, the city filed a revised debt-cutting plan
with the federal court that includes a deal with two banks to shave
its debt to $85 million from about $288 million owed. But no other
creditors have forged similar deals and some creditors, including
bond insurers, plan to fight the proposed deal with the two banks,
UBS AG and Bank of America Corp., at a court hearing in Detroit
Thursday.
During the hearing, Judge Rhodes also questioned a city attorney
about the effect of the city's proposed debt cutting plan on
individual pension holders.
According to city officials earlier this week, if current and
retired police and firefighters vote to approve the new plan filed
earlier this week, they would see a 6% reduction in their pension
benefits and the elimination of cost of living adjustments. If they
voted against the plan, the reduction would increase to 14%. Other
employees and retirees would also see greater cuts under the
revised plan.
Bill Nowling, a spokesman for Detroit Emergency Manager Kevyn
Orr, said Wednesday that the plan includes more than $800 million
in funding promised by foundations and the state to help the city
pay its pension obligations. But that money requires that a
majority of holders with each of the city's pension systems must
vote in favor of the plan, according to Mr. Nowling.
Write to Matthew Dolan at matthew.dolan@wsj.com
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