CHICAGO - After Detroit Public Schools' emergency manager warned the district can't pay off $85 million of state-aid notes due in August, a Michigan loan board has approved a refinancing plan to push out payments for at least another year and possibly up to 15 years.
The state's Local Emergency Financial Assistance Loan Board approved the plan Tuesday morning. The district will also be able to refinance another $96 million of limited-tax general obligation bonds originally issued in 2005 and refinanced in 2012.
The finance team on the note issue will include JPMorgan as underwriter, Public Financial Management as the district's financial advisor, and Miller Canfield as bond counsel.
The measures come as Gov. Rick Snyder is pushing a reform plan that would divide the troubled district into two entities to create a new school system with a lighter debt load. The governor unveiled his plan last week and hopes to see legislative action in the fall.
Meanwhile, emergency manager Darnell Earley is warning that the district is facing a cash crisis and doesn't currently have enough money to cover the $85 million note payments. The junk-rated district faces a $170 million general fund shortfall that includes roughly $50 million of unpaid pension contributions.
An order that Earley asked the school board to pass in April notes that the district "does not currently have the ability to repay the 2014 district note in accordance with the required schedule and also continue to implement financial, operational and academic improvements at the district."
The school board rejected the order.
DPS issued $107.8 million of limited-obligation general obligation notes on August 29, 2014 at an interest rate of 2.85%. They're due on August 20, 2015. The notes were to be repaid with future per-pupil state aid.
The emergency loan board's Tuesday approval means the district can restructure to push the debt out by at least 13 months and up to 15 years, according to the draft order.
DPS would save $81.5 million if it is able to refinance the debt by May 19 or $66 million if it's completed by June 19, according to the district's presentation.
The Detroit education board on Tuesday presented the state board with an alternative plan, which would have the state take over all bond debt accrued while DPS was under state control.
The Michigan board rejected the alternative plan.
Snyder's reform plan for DPS calls for something similar.
By having an 'old' district take over at least $53 million in annual debt service payments, the state will be required to transfer at least that amount, and up to $72 million annually, to the new district. Snyder' plan would have the new one take over all educational duties.
The state loan board also approved Earley's request to refinance $95 million of limited-tax GO bonds originally issued in 2005 and refinanced in 2012.
