CHICAGO - The Michigan Municipal Bond Authority plans to enter the market today with $690 million in short-term revenue notes that will be used to ease fiscal 2009 cash-flow deficits for local school districts across the state.
The notes are divided into two series - one for $197.5 million and one for $493.1 million. Dexia Credit Local and Scotiabank are providing letters of credit on the latter series.
The authority will use proceeds from the sale to purchase notes that were previously issued by certain school districts, allowing them to use the money to cover shortfalls anticipated in the 2009 fiscal year. The districts will use their share of state aid payments to pay back the notes.
Siebert Brandford Shank & Co and JPMorganwill lead a team of seven additional underwriters on the transaction. Dykema Gossett PLLC and Thrun Law Firm PC are co-note counsel.
Standard & Poor's assigned its top SP-1-plus short-term rating to the $197.5 million series, citing in part the strong terms of repayment for the notes. The agency is expected to shortly assign a short-term rating on the $493 million series based on the letters of credit. The authority did not request additional ratings from other agencies.
Under the structure of the repayment terms, school districts will set aside a certain amount of revenue every month into repayment accounts in order to ensure that the accounts are fully funded at least one month ahead of when the notes come due, in August 2009. In addition, under Michigan law the state treasurer is allowed to advance money to districts that have a shortfall in their repayment accounts. The treasurer also has the ability to tap into state aid funds appropriated for the following year if necessary to help make payments.
The notes are limited obligations of the bond authority and not a debt of the state, although the government's financial position could affect the deal as districts depend on state aid to make their payments. The operating costs of Michigan schools are funded by local property taxes and state school aid. About 90% of debt service comes from local property taxes and the remaining 10% comes from the state school loan revolving fund.
A year ago the Municipal Bond Authority sold $713.1 million in revenue notes that were used for the same purpose.
