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Detroit Council approves proposed $120M loan to improve services

Detroit Council approves proposed $120M loan to improve services. CHRISTINE FERRETTI  THE DETROIT NEWS March 14, 2014. http://www.detroitnews.com/article/20140314/METRO01/303130127/0/METRO06/Detroit-Council-approves-proposed-120M-loan-improve-services. Loan for Improvement.

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Detroit Council approves proposed $120M loan to improve services

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  1. Detroit Council approves proposed $120M loan to improve services CHRISTINE FERRETTI  THE DETROIT NEWS March 14, 2014 http://www.detroitnews.com/article/20140314/METRO01/303130127/0/METRO06/Detroit-Council-approves-proposed-120M-loan-improve-services

  2. Loan for Improvement • Detroit — The City Council on Friday voted in favor of a proposed $120 million loan for improvements to city services. • The 6-3 approval comes after the panel first complained about blank pages in the 120-page loan agreement and postponed its decision to obtain the missing information. • The deal reached by Emergency Manager Kevyn Orr seeks to borrow from the London-based investment bank Barclays. The loan would finance “quality of life” improvements during Detroit’s bankruptcy and after its exit from Chapter 9.

  3. Two prior agreements failed • Two prior agreements with Barclays — one to borrow $350 million and a second for $285 million — fell through after U.S. Bankruptcy Judge Steven Rhodes rejected the city’s plan to use a large percentage of the loans to pay off two banks and terminate a troubled pension-related debt. • At Friday’s meeting, Detroit’s Interim Finance Director John Naglick said the funds are a subset of more than $1 billion expected to be invested in restructuring efforts over the next decade. Without it, he said, the city would have to wait until Rhodes confirms the city’s plan of adjustment.

  4. Adjustable Rates • Detroit is asking Rhodes to approve the new loan, which would be backed by income tax revenue and up to $10 million in collateral from the sale or “monetization” of undisclosed city assets, excluding city-owned art at the Detroit Institute of Arts. • Barclays is charging the city a base interest rate of 3.5 percent plus a market-based flexible rate that would cap total interest payments at 6.5 percent.

  5. The Economics Interest Rate • Bank would start at certain rate, probably 3.5%, although article is not clear. • If market interest rates float upward (as some expect), Barclay’s can charge more. • Cap at 6.5%. 6.5% 3.5% Loan Amount

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