CHICAGO — The Michigan Finance Authority said it received orders from 30 firms on its $108 million state aid revenue note sale on behalf of Detroit Public Schools, which will pay a much lower interest rate than last year's DPS note deal.
JPMorgan and Loop Capital Markets LLC managed the transaction. Proceeds will help the district meet its operating cash flow needs. The sale followed the approval of the district's state imposed financial oversight board.
"Investor interest was quite high and continues to show a strong demand for Michigan-based investments," Chief Deputy State Treasurer Tom Saxton said in a statement. Market participants attributed interest to the state aid backing and opportunity for a top yield.
While the notes offered some opportunity for extra yield, the authority highlighted that the 2.85% captured was significantly lower than the $92 million of DPS state aid notes sold last year with a 4.375% interest rate. The new sale received an SP-1 rating from Standard and Poor's.
The district will repay the notes with per-pupil state aid it's slated to receive later this year.
DPS, like many Michigan districts, typically borrows for cash flow purposes. This year's borrowing plan was marred by a dispute between DPS Emergency Manager Jack Martin and the school board, which voted down Martin's $111 million proposal in favor of an $81 million borrowing.
The Michigan Emergency Loan Board, as allowed under state law, considered both proposals, and opted to approve the $111 million transaction.
Michigan School Superintendent Michael Flanagan recently approved DPS' five-year deficit elimination plan, which would implement 10% salary cuts for DPS employees, including teachers. It also means the likely closure of 24 schools and buildings next year. The district has a $127 million deficit that it has struggled to bring down for years.
