CHICAGO — The Michigan House Wednesday passed a bill giving bondholders a statutory lien on Detroit's income tax revenue, a measure meant to ease the city's first capital markets appearance since it exited bankruptcy.
The Senate approved the measure last month.
The legislation applies to a $275 million placement the city did with Barclays in December 2014, during the final days of its bankruptcy. The agreement calls for the city to roll the variable-rate debt into a fixed-rate mode within 150 days. That will mark Detroit's first post-bankruptcy public financing.
Senate Bill 160 requires Detroit to send all of its income tax revenue to a trustee for the benefit of the holders of the financial recovery bonds, before paying debt service and releasing what's left to the city.
The legislation would give bondholders a superior, statutory lien on the income tax revenue until the bonds are paid off.
The Barclays agreement requires the city to seek at least two credit ratings, and officials are hoping that the new statutory lien and intercept feature will win investment-grade ratings for the debt. Currently all of the city's debt is junk rated. Fiscal analysts reviewing the bill said the lien and intercept could save the city between $2 million and $3 million a year on debt service.
The $275 million bonds, which currently feature eight- and 10-year maturities, are the city's only debt backed by an income tax pledge.
The Republican-led House passed Senate Bill 160 by a vote of 107 to 3 on April 15. The Senate approved the measure in March. The bill will next head to Gov. Rick Snyder, who is expected to sign it.