DALLAS-- Detroit got the all clear from the city's Financial Review Commission to move ahead with a refunding of $660 million of general obligation debt.
The FRC approval, which came Monday afternoon, according to Detroit finance director John Naglick, is the last step in the process to get the bonds to market. Naglick anticipates a late July, early August issuance date.
The deal, which would mark the city's first GO issue since exiting Chapter 9 bankruptcy protection in late 2014, is projected to generate savings of about $40 million that the city would use to provide budgetary and property tax relief. Naglick said that city will seek updated ratings from Moody's and S&P.
The city will refund up to $275 million of unlimited tax GO bonds sold in 2014 and as much as $385 million of limited tax GO bonds sold in 2010 and 2012. The bonds were issued through the Michigan Finance Authority and carry a backing of the city's state distributable aid.
First Southwest is financial advisor to both the MFA and the city. Barclays is the lead underwriter. Legal firms working on the deal include Miller Canfield Plc and Dickinson Wright PLLC. In Michigan, a local unit of government can only pledge such distributable state aid on bonds issued by the MFA. Accordingly, the advisors and underwriters were selected by the MFA.
Naglick said that savings on the LTGO bonds will benefit Detroit's general fund budget by approximately $15 million, while savings on the UTGO bonds of $24 million will be used to lower the debt millage on the city's property owners.
Detroit filed for the largest municipal bankruptcy in the U.S. in July 2013 and exited Chapter 9 in late 2014. In August 2015, in its first post-bankruptcy bond sale, the city sold $245 million of local government loan program revenue bonds through the MFA at a steep premium.
The debt was enhanced with a statutory lien and intercept feature on the city's income taxes, which landed the deal an A rating from Standard & Poor's, which rates Detroit stand-along GOs deep in speculative-grade territory.
