By Joseph Lichterman
DETROIT, Nov 14 (Reuters) - Detroit must disclose the feestructure of a $350 million debtor-in-possession financingagreement, a bankruptcy judge ruled on Thursday, turning backthe city's efforts to keep secret the cost of a controversialloan package, and leading to a sharp exchange with one of thebankers involved in the deal.
The city and Barclays Capital had requested the fees be kepta secret because the details are commercially sensitive andmight raise the price of the loan.
But U.S. Bankruptcy Judge Steven Rhodes said in his ruling that it was "really quite irrelevant" that Barclays did not wantto disclose the fees. He noted that the fee letter is subject toMichigan's Freedom of Information Act.
"It's even irrelevant that the city may have agreed to havekept it confidential because there's nothing in the Freedom ofInformation Act that exempts material that is subject to aconfidentiality agreement between a private party and a publicinstitution like the City of Detroit, or permits enforcement ofsuch a confidentiality agreement," Rhodes said.
James Saakvitne, managing director of Barclays municipalliquidity origination group, testified that the bank'scompetitors would benefit from knowing how much Barclays chargesfor DIP financing.
When he added: "It's very important to us to be there tohelp the city," Rhodes interrupted him, saying: "Hold on. What'svery important to you is to make money."
Saakvitne later warned that, "if all fees are going to bemade public, that might put a real chill in the market and(scare off) lenders from being willing to show their pricingmodel."
"So much for being willing to help the city, huh?" Rhodes responded.
Detroit reached the loan agreement with Barclays, a unit ofBritain's Barclay's Plc, in October, but the deal stillmust be approved by Judge Rhodes. About $230 million of theproceeds would be used to end interest-rate swaps contracts thatthe city has with Bank of America Corp's Merrill LynchCapital Services and UBS AG. The swaps were related todebt sold in an effort to help Detroit make payments into citypension funds.
About $120 million of the DIP financing would be used toimprove city services. The financing would be largely securedwith a pledge of Detroit's income tax and casino tax revenue.Bond insurers and others have objected to Detroit's proposal topay off its swap counterparties ahead of other creditors.
Detroit's unions, pension systems, bond insurers and othersalso objected to the Barclays fee letter being filed under seal.Rhodes, who is overseeing the historic municipal bankruptcy caseDetroit filed in July, has scheduled a hearing beginning Dec. 10to decide whether or not to approve the loan.