CHICAGO -- A gilt-edged suburb of Detroit will come to market Tuesday with $80 million of pension obligation bonds in the first public offering of pension debt under a new Michigan law allowing municipalities to borrow to cover the cost of their unfunded retirement liability.
Bloomfield Township, located about 10 miles outside Detroit, is expected to sell the bonds Tuesday and Wednesday. Fifth Third Securities is the underwriter. Bendzinski & Co. is the financial advisor and Dickinson Wright is bond counsel.
The city of 41,000 carries triple-A ratings from Moody’s Investors Service and Standard & Poor’s. The finance team expects the ratings will help protect the city from any interest-rate penalty fallout from Detroit’s bankruptcy.
Detroit’s Chapter 9 filing, and its decision to treat its GO bonds as unsecured, roiled the local Michigan market and prompted many issuers to postpone or delay deals in the weeks after the filing. Local issuers began to trickle back in the market in mid-September.
“I don’t think it’s affecting local issuers as many people say it is,” said Robert Bendzinski, the town’s advisor. “We’ve done some competitive stuff and it’s been fairly high quality and they’ve been at the market [rate] or even below it on a national basis.”
Political bickering in Washington could hurt Bloomfield and other issuers more than Detroit, Bendzinski said.
“I don’t think waiting is going to be to our benefit,” Bendzinski said. “The federal level could hurt us more than Detroit. If rates start ticking up, and Congress can’t come to a solution, we could see treasuries spike.”
Bloomfield Township -- home to the late crime writer Elmore Leonard -- will be the first local government to float bonds on the public market since the Legislature passed a law last year allowing local issuers to borrow to cover unfunded pension or health care retirement liabilities.
The law requires that governments meet certain criteria to be eligible to bond for their obligations. Issuers have to be rated in the double-A category, for example, as well as have a closed defined-benefit plan and prove that they can cover debt payments with general fund dollars.
Bloomfield Township will issue taxable pension obligation bonds backed by the township’s limited-tax full faith and credit GO pledge.
The city’s pension liability totals about $80 million. Its annual payments currently are $10 million, out of a total all-funds budget of $40 million. Pension payments jumped from $5 million annually three years ago to $10 million now due to changes in mortality and interest-rate assumptions, and could climb higher, Bloomfield Treasurer Dan Devine said in an earlier interview with The Bond Buyer.
Bloomfield expects to achieve around $30 million in net present value savings when comparing the debt service payments to the annual required contributions, Bendzinski said.
Credit analysts affirmed their triple-A ratings on the city ahead of the deal, noting its location in affluent Oakland County, which also carries top marks, as well as its strong reserves, liquidity, and management.
Oakland County in September did a private placement to cover its $350 million OPEB liability as allowed under the new law. The county was expected to float the bonds publicly, but in the end opted for a private placement to get the deal done by the end of its fiscal year on Sept. 30.
Saginaw County was set to come to market in early August with $61 million of pension bonds but postponed the deal after Detroit’s filing.
