CHICAGO -- Oakland County, Mich. said time and money -- not fear of a Detroit penalty -- drove its decision to do its first-ever private placement, on a long-planned $350 million general obligation refunding.
The county closed Friday on a deal to privately place $316 million of the bonds to Bank of America Merrill Lynch for a true interest cost of 3.62%.
That’s down from 6.2% the county was paying on the original debt, which were certificates of participation it issued nearly seven years ago to pay off its other post-employment benefits liability.
The bonds, which are taxable, carry the county’s gilt-edged triple- A ratings from Moody’s Investors Service and Standard & Poor’s.
“It had absolutely nothing to do with Detroit,” the county’s deputy executive, Robert Daddow, said late Friday in an interview. Daddow said the county opted for the deal a few weeks ago, as it realized it was going to be difficult to close on a public borrowing by Sept. 30, the end of the fiscal year. The county also saved around $1 million in underwriter fees, Daddow added.
“If we had gone to market, I don’t think it would have made a hills of beans difference” in terms of interest rates, he said.
The county purchased the remaining $34 million of bonds itself, according to Treasurer Andy Meisner. The county will tap its shared cash pool used to make investments on behalf of the county and other local governments to buy the bonds. The county had bought $34 million of the original certificates of participation when they were issued in 2007 as well, Daddow said.
The county-owned piece of the debt features the final maturity of all the debt, in 2027.
“It’s not your everyday vanilla deal, but Oakland is not your everyday vanilla county,” Meisner said.
The county floated a Request for Proposals from underwriters in July. Bank of America was one of a few banks that, during its presentation, said a private placement was always an option to the traditional market, Meisner said.
At first the county didn’t consider the option, but as it fell behind on its sale date schedule and the bond market grew weaker, officials revisited the option.
“In light of some of the turbulence in the market, and some of the challenges our sister counties had had, and just the general desire to have as many options as possible, we decided to partner with Bank of America,” the treasurer said.
Oakland is the latest in a series of Michigan issuer to come to market with postponed deals after investors were stunned by Detroit’s bankruptcy and the city’s move to treat its general obligation bonds as unsecured.
Unlike other issuers, including Saginaw and Genesee Counties, Oakland always maintained that its delay was due solely to an overly ambitious timetable, not to any fear of a Detroit penalty.
The bond issue is allowed under a relatively new state law that lets certain Michigan governments issue long-term debt to pay off OPEB obligations.