Milwaukee School Cash Flow Notes Up Wednesday

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CHICAGO — Milwaukee plans to take competitive bids as scheduled Wednesday on $130 million of school cash flow notes but can delay the deal if too steep a penalty is demanded due to market unrest over the Congressional stalemate on the government shutdown and debt ceiling.

The city's school revenue anticipation notes sale is slated as uncertainty remains over whether Congress can strike a deal to reopen the government and raise the debt ceiling to avert a default deadline later this week. Concerned over the market impact, Milwaukee comptroller Martin Matson's office opted last week to issue $50 million of extendible municipal commercial paper for cash flow purposes for the Milwaukee Public Schools.

The move takes the pressure off the need to get cash to the district from its traditional cash flow borrowing mechanism.

"We are prepared for the potential of some penalty….but with the measures we have taken to improve our liquidity we are in a position with some cushion to wait until mid-November should bids come in unreasonably high," said Richard Li, public debt specialist in the comptroller's office.

The city also sought to avoid any penalty that might be imposed on a piece of $24 million of existing EMCP scheduled to roll over this week by asking its agent Bank of America Merrill Lynch to roll over the paper early last week, Li said.

The notes being bid Wednesday mature June 30. Public Financial Management Inc. is the adviser and Katten Muchin Rosenman LLP and Hurtado SC are bond counsel.

The comptroller's office tapped its EMCP program last week for $50 million and also $50 million in September and expects to pay down the $100 million with the district's share of property tax revenues received later this year, Li said.

The revenue anticipation notes received top short-term marks from Moody's Investors Service of MIG-1 and of SP-1-plus from Standard & Poor's. The notes are secured by all revenues of the school operations fund attributable to the fiscal year ending June 30, 2014, including state aid receipts.

Standard & Poor's said the rating reflects adequate debt service coverage from projected amounts on deposit in the school operations fund; the segregation of funds from the district's June 2014 state aid payment; and a structure that relies on interest payments from the city from surplus revenues in its debt service fund. The city is rated AA with a stable outlook by Standard & Poor's.

The Milwaukee schools posted a $4.75 million surplus in fiscal 2012, bringing its available general fund balance to $68.9 million, or 6.4% of expenditures, which Standard & Poor's said it considered good. For fiscal 2013, the district anticipates an $8 million draw due to a large amount of retirements resulting in a $6.2 million sick leave buyout. Management budgeted for break-even operations in fiscal 2014.

Moody's said its rating reflects "the historical timeliness and predictability of pledged revenues, which include property tax receipts and state aid; the accuracy of the district's past cash flow projections; the reasonableness of the district's future cash flow projections; and the segregation of funds for note repayment approximately 13 days in advance of maturity."

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