Detroit could end up paying almost twice as much in interest as previously disclosed on a $350 million loan arranged by Barclays Capital, according to a fee letter made public yesterday after a judge ordered it unsealed last week, Reuters reported today. Bankruptcy Judge Steven Rhodes on Thursday thwarted efforts to keep the cost of a debtor-in-possession (DIP) financing under wraps, noting that the fee letter was subject to Michigan's Freedom of Information Act. The letter disclosed that Barclays would collect 1.25 percent of the loan, but not less than $750,000, for committing to a controversial financing deal with Detroit. The city and Barclays Capital had requested the fees be kept a secret because the details are commercially sensitive and might raise the price of the loan. One financial adviser who specializes in restructuring work said opponents of Detroit's proposed bankruptcy could object to the "market flex" provision of the fee letter by making the argument that the flex provision essentially allows the interest on the loan to be raised to 6.5 percent from the 3.5 percent previously cited by the city. Barclays is allowed raise the rate within 90 days of the closing of the loan if the bank is unable to find investors to buy up to half the loan, according to the unsealed fee letter.
