CHICAGO - Michigan yesterday priced $220 million of general obligation environmental program bonds in a sale that kicks off the state's plan to restructure or refinance some of their outstanding debt in order to generate badly needed savings through fiscal year 2010.
The tax-exempt Series 2008A, containing $200 million, was priced to yield from 4.78% in 2011 to 4.11% in 2019. Series 2008B comprised a $19 million taxable portion.
The state is also scheduled to refund an additional $15 million on April 23, in a sale that will complete the restructuring of its environmental program debt. Yesterday's sale includes a $25 million new-money piece, which will be used to finance several state environmental programs. Michigan also, as part of its debt refinancing plan, intends to convert $150 million of outstanding taxable tobacco bonds into tax-exempt debt, a move that officials estimate would generate $60 million in one-time savings.
Yesterday's fixed-rate issue, which includes a mix of taxable and tax-exempt securities, carries no insurance, said Tom Saxton, Michigan's deputy treasurer for bond finance.
Bear, Stearns & Co. is lead manager on the deal, and JPMorgan is co-senior manager, with Depfa-First Albany Securities LLC, Fidelity Capital Markets Services, Fifth Third Securities Inc., Loop Capital Markets LLCand Wachovia Bank NA serving as co-managers. "We try to make sure that we're spreading the business," Saxton said of the overall team.
Lewis, Munday & Bullard, Canfield, Paddock & Stone PLC are co-bond counsel, and Robert W. Baird & Co. is financial adviser on the deal.
The state picked Bear Stearns as senior manager on Feb. 19, about a month prior to the investment bank's near collapse that resulted in a deal for JP Morgan to buy the firm - bolstered by the support of the Federal Reserve.
"They came with the best proposal, from a technical standpoint; this deal has a lot of quirks to it," Saxton said. "The bankers there, like David Rush, do a great job."
State officials received a phone call from the bankers shortly after the collapse, reassuring them that the deal would go forward without interruption, Saxton said.
"They were saying that they were willing and able to do the transaction on their own," he said. "As we understood it, the work-out with JPMorgan is that they're backstopping various obligations that Bear Stearns might be undertaking. For us as a client, it had no impact."
And in more recent weeks, as the state completed its picks for the financial team, Saxton said it "just made sense" to name JPMorgan as the co-senior manager.
In connection with the sale, Moody's Investors Service rated the bonds Aa3, consistent with its rating on the state's outstanding $1.46 billion in GO debt and $3.5 billion in outstanding lease obligations. Fitch Ratings assigned an AA-minus - with a negative outlook - to the issue, as well as to the state's outstanding GO debt.
"Important to the resolution of the negative outlook will be the state's economic and fiscal performance amid a slowing national economy," Fitch analyst Kenneth Weinstein wrote in the ratings report.
Moody's analyst Edward Hampton estimated that the $233 million issue would save $30 million in fiscal 2008, $41 million in fiscal 2009, and $44 million in fiscal 2010. The transaction is restructuring the repayment schedule of various bond issues sold between 1989 and 2005 for near-term relief with just nominal net present value savings expected.
In addition to the refunding, yesterday's sale will include $25 million in new money that will be used to finance six environmental programs, including brownfield loans, waterfront development, and contaminated lake and river sediment cleanup, according to state officials.
