Detroit's available cash drying up more slowly than feared: report Tue Jan 21, 2014 5:39pm EST (Reuters) - Detroit's available cash shrank less quickly than city officials feared it would in the latest quarter, but it was still down nearly 32 percent from the previous quarter to $87.5 million, according to a report posted on the city emergency manager's website on Tuesday. The decline was significant, but did not approach the levels feared by Detroit Emergency Manager Kevyn Orr. In August, he warned that the city could be out of cash at year end if Detroit were unable to gain unfettered access to casino tax revenue, which is pledged to banks for payments on interest rate swap agreements that the city is trying to terminate at a steep discount. U.S. Bankruptcy Judge Steven Rhodes, who is overseeing Detroit's bankruptcy case, last week rejected a deal for the city to end the swaps at a 43 percent discounted payment to two investment banks. Rhodes urged Detroit to renegotiate with its swaps counterparties, UBS AG and Merrill Lynch Capital Services. Detroit's cash on hand beat the city's forecast of ending the quarter with just $40.7 million, largely due to higher-than-expected property tax collections, the report showed. Orr's spokesman warned that the city's cash position remains vulnerable to a sudden decline. "If the city loses the right to keep its casino revenues, which is a very serious question right now in court with regard to the swaps and (pension debt), then that $87.5 million could diminish rapidly," said Bill Nowling, the spokesman. Detroit in 2005 and 2006 sold $1.45 billion of pension debt to improve its unfunded public pension liability. The swaps were used to hedge interest rate risk on some of the debt. Orr took the cash-strapped city into federal bankruptcy court in July to deal with more than $18 billion in debt and liabilities and thousands of creditors. The latest quarterly report was dated January 15, one day before Rhodes' ruling on the swaps deal. In the report, Orr said he believed "approval of the swap settlement would be an important step in the city's restructuring." The report uses the same positive language to describe a $285 million loan through Barclays PLC that Orr had negotiated, with $165 million earmarked to pay off the swap counterparty banks and $120 million to improve city services. Rhodes also rejected the loan for the swaps payment. Access to casino revenue, which totals as much as $180 million a year, has emerged as a key element of Orr's bankruptcy strategy. Orr also planned to use casino revenue to help secure the Barclays' loan. "If we don't do anything such as secure this casino revenue, if we don't go to the capital markets and borrow additional funds, which appears unlikely which the city has done every other year since 2008 to make up the difference, yes, the projections show that by December of this year, we will run out of cash," Orr said in an August 30 sworn deposition in the case. Year-to-date revenue was down $6 million from the same period in fiscal 2013 and operating expenses dropped by nearly $52 million, the report showed. Costs were lower due largely to reduction of the city workforce by 776 positions since the end of December 2012. Detroit's fiscal year began July 1. Detroit has kept making payments on secured debt, although the city defaulted on $9.37 million in payments on October 1 for certain general obligation bonds Orr deemed unsecured. Detroit paid $8.5 million toward the swap agreements in the quarter that ended December 31, according to the report. In the report sent to Michigan officials, Orr also stated he plans to file a proposed plan of adjustment for the city before the March 1 deadline set by the court. Reporting By Karen Pierog, editing by David Greising and David Gregorio