The Bond Buyer 100

Michigan Finance Authority Sees More Unemployment Debt Ahead

CHICAGO — The Michigan Finance Authority was the nation’s fifth largest issuer last year, driven largely by its last-minute, late-December issuance of $3.32 billion of short-term bonds to pay off the state’s unemployment liability.

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The unemployment insurance bond issue will boost the MFA’s volume level again this year as the agency expects to issue long-term debt by early summer in order to take out the two-year bonds.

Former Gov. Jennifer Granholm created the MFA in 2010 as a way to consolidate nearly all state debt issuance under the umbrella of one state authority.

The MFA replaced 10 separate issuers and is responsible for nearly all state borrowing, with the exception of general obligation bonds and Michigan State Building Authority debt.

“We’re the bread-and-butter state entity issuer,” said MFA executive director Joseph Fielek.

As the state’s main issuer, the authority hits the market at least once a month, he said.

It began issuing debt in mid-2010, and for the last six months of that calendar year sold $2.16 billion of long-term bonds and notes, according to the state.

In addition to the Dec. 28 sale of $3.32 billion of two-year unemployment bonds other large transactions by the MFA in 2011 were $238 million for Detroit Public Schools and $325 million for Trinity Health, one of the state’s largest health care providers.

The upcoming unemployment bond sale will be the authority’s “big one” this year, according to Fielek.

Officials expect to select a final finance team for the deal by the end of March. Citi, which acted as senior underwriter and letter-of-credit provider on the original issue, will be one of the senior underwriters, Fielek said.

“We’re not sure what the end transaction is going to look like, so there could be another senior,” he said.

The financial advisors on the team are R.W. Baird & Co., which is Michigan’s regular advisor.

Also advising will be First Southwest Co., which advised Texas on its unemployment insurance bond sale. Dickinson Wright PLLC is bond counsel.

The unemployment bond issue sold in late 2011 was structured as LOC-supported variable-rate bonds that mature in June 2014.

The authority is still considering the final structure for this year’s offering. It could include several series and some of the bonds could be privately placed.

It’s likely that much of the new debt will be offered in a fixed-rate mode, Fielek said.

Fielek noted that the state is happy with costs tied to its variable-rate bonds. It paid an initial interest rate of 0.24% on those bonds.

That rate compares to the 4.1% interest rate the federal government charged Michigan last year for its unemployment insurance funds.

“It’s saving us some pretty good money every month, about $10 million,” Fielek said. “We’re looking at the structure and our plan is to get something in place by June,” which is when the first interest-rate increase is scheduled, he added.

The bonds are backed by an assessment paid by employers in the state.

The Michigan Finance Authority maintains a pool of bond firms for each of its programs, which range from local school financing to water and sewer revolving fund programs.

The MFA does not plan to issue any new requests for proposals in the near term, Fielek said.

The state treasurer is chairman of the seven-member MFA board.

Michigan has about $1.5 billion of outstanding GO bonds.

Moody’s Investors Service rates the state’s GO debt Aa2. Standard & Poor’s rates it AA and Fitch Ratings rates it AA-minus with a positive outlook.

Coming Thursday: Illinois ranked among the top issuers of municipal bonds in the U.S. last year even though it sold much less debt in 2011 than it did in 2010.



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