Battle Creek Fights Post-Detroit Michigan Malaise, Brings GOs

CHICAGO — The city of Battle Creek, Mich., Thursday morning sold the first sizable deal featuring local Michigan general obligation bonds since Detroit's historic bankruptcy filing in a closely watched transaction its bankers deemed a "remarkable success."

Battle Creek was one of three Michigan issuers that had originally planned to sell debt in early August, before pulling back in the face of a market skittish about Michigan GO bonds after Detroit's July 18 Chapter 9 filing in which it plans to treat its GO debt as unsecured.

Saginaw and Genesee Counties, the other two issuers, have yet to come to market. Triple-A rated Oakland County also delayed a deal set for early September, but hopes to sell the debt before the end of the month.

Hutchinson Shockey Erley & Co. was the underwriter on Battle Creek's deal, which featured $15.4 million of insured, limited-tax GO bonds.

"We get the sense this is a real bellwether deal," Tom Dannenberg, Hutchinson's president and CEO, said after the deal priced Thursday morning. "This was so well received that it will allow other issuers who have been hesitant to come forward."

The total interest cost is 4.86%. The city decided to insure the bonds with Build American Mutual, a move that "more than paid for itself," bankers said.

The BAM wrap comes with a AA Standard & Poor's rating, and stable outlook.

The bonds, which featured a five-year call in 2018, were re-priced down by a total of 17 basis points after the initial Wednesday order period.

The bonds, with underlying ratings of Aa3 by Moody's Investors Service and AA by Fitch Ratings, attracted 41 separate investors, ranging from mutual funds to insurance companies to asset managers.

"For the size of our transaction and being from Michigan with all the headlines out there, that's very substantial," said Bryan Derdenger, Hutchinson's head municipal underwriter.

The market response "gives you some idea of the acceptance of a local GO in Michigan," Dannenberg said.

"Looking at the spreads on this to the benchmark MMD five year call, I honestly don't believe there was much, if any, Michigan penalty," Derdenger said.

Battle Creek's population is 52,000 and it's located about 120 miles from Detroit.

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