CHICAGO — The Michigan State Building Authority is expected to enter the market Wednesday with $105 million of lease-backed, fixed-rate revenue bonds.
The debt is expected to be sold in three series, including two term bond series. Proceeds from the issue will be used to pay off the authority’s outstanding commercial paper and finance construction costs for a number of the authority’s buildings that are leased to the state or educational institutions.
Siebert Brandford Shank & Co. will lead a team of six banks on the deal. Robert W. Baird & Co. is the authority’s financial adviser. Dickenson Wright PLLC is bond counsel.
A key issuer for the state, the Building Authority has about $3 billion of outstanding debt, accounting for more than 40% of Michigan’s total state-supported debt.
The bonds are payable from rentals due under state lease agreements and are limited obligations of the authority. Proceeds will finance work on several buildings, including the state’s general office building in Lansing, the Grand Rapids State office building, and several University of Michigan and Wayne State buildings.
Ahead of the sale, Moody’s Investors Service rated the bonds A1 with a negative outlook. The rating is one notch below the state’s Aa3 general obligation rating because the state legislature needs to annually approve the appropriation of debt service payments.
Standard & Poor’s rates the authority’s debt A-plus with a stable outlook. Fitch Ratings rates it A, one notch below the state’s GO rating.
The authority, which is governed by a five-member board appointed by the governor, last entered the market in August when it sold roughly $220 million of refunding bonds in a restructuring expected to save the state $10 million annually through 2020. The sale was the state’s first since Fitch downgraded its debt to A-plus from AA-minus.
In a recent report, Moody’s warned that Michigan’s recession could outlast the national recession as the state grapples with the restructuring of the domestic automobile industry. Analysts praised the state’s management, and noted that federal stimulus funds helped Michigan manage its falling revenue — and the importance of finding a way to replace the federal money once it runs out.
Moody’s assigned a negative outlook to the state in March, saying it lacks economic resiliency due to the collapse of the auto industry, which is likely to mean less liquidity and more budget challenges over the near term.
“Future rating decisions are likely to reflect how well the state manages its long-running economic challenges, and whether it makes provisions to return to structural balance as federal supports are removed,” Moody’s analyst Ted Hampton wrote in the report.
After the sale, the authority will have roughly $58 million of commercial paper outstanding.
