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Detroit asks bankruptcy judge to approve $350 million debt plan

The city of Detroit on Tuesday asked [motion, PDF] Judge Steven Rhodes to approve a plan where the city will borrow $350 million in order to pay down interest rates and improve city services. The loan was approved by Barclays PLC [corporate website] but requires judicial approval under Chapter 9 of the Bankruptcy Code [11 USC § 9 text]. The $350 million would be separated into different categories of bonds. One category, "swap termination bonds," would be used specifically to pay down debts, while the other, "quality of life bonds," would be reinvested into city services. The city argues that post-petition financing under 11 USC § 364(c) [text] represents "sound business judgement" and should therefore meet the standard required to seek the financing. The filing claims the city will save nearly $50 million by pursuing this course of action with Barclays. A hearing on the matter has not yet been set.

Detroit's bankruptcy filing has been controversial both practically and academically. JURIST guest columnists Patrick Brady and Igor Shleypak [JURIST op-eds] have written, respectively, on how Detroit's pension holders have been fighting for their rights in the case and how Detroit's actions may pave the way for other cities to file under Chapter 9. In July Rhodes allowed [JURIST report] Detroit's case to continue, claiming his federal bankruptcy court had exclusive jurisdiction. This put a stay on proceedings that just days earlier declared [JURIST report] the case unconstitutional. Detroit originally filed [text, PDF] its bankruptcy petition earlier that month.

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