CHICAGO — Allen Park, Mich. has delayed the settlement date for its purchase of $11.2 million of the $26.3 million of bonds offered to tender from a troubled issue for a failed movie studio project.
The delay to Nov. 5 comes because the city is still working out details on the refunding bonds that would be issued to cover the city’s purchase.
Standard & Poor’s said Wednesday Allen Park’s speculative-grade ratings would hold steady for the time being as it evaluates the tender results.
“We continue to follow the situation, including the terms of the tender, and will update the market as applicable,” the rating agency said.
The city hopes the refunding debt, issued through the Michigan Finance Authority and supported by a state-aid pledge the outstanding debt lacks, will get an S&P rating in the single-A category, it said in prior documents.
Allen Park launched the tender offer over the summer in an attempt to put behind it a troublesome bond issue that brought federal securities charges upon the city.
It later extended the expiration date of its invitation to Sept. 30 from Sept. 16 and raised prices to 103% from 100% on a portion of the bonds. One insured maturity offered 108%.
Holders of $11.2 million, representing 42% of the bonds, accepted the tender offer.
The bonds, sold in a taxable limited tax general obligation series and a LTGO recovery zone facility bond series in 2009, bear coupons of between 5% and 7.25%.
The settlement date was extended from Oct. 14 to the new Nov. 5 date “in order to accommodate the Michigan Finance Authority issuance and rating process,” a notice read. The city continues to work with the MFA on the structure and timing of the refunding bonds. The city notified holders that it reserves the right to further extend the settlement date if needed.
The city wants to issue limited tax LTGO bonds through the MFA backed by a new pledge of state aid layered over Allen Park’s limited full faith and credit pledge.
“The city and the authority are expected to enter into a Distributable State Aid Pledge Agreement which would direct the state treasurer to send 100% of the city’s DSA to the trustee for the repayment of the city’s refunding Bonds, and correspondingly the MFA Allen Park Bonds, accordingly to a required set aside schedule,” documents say. The trustee would then forward any unused state aid revenue to the city.
The city expects the finance authority to offer the bonds for Allen Park via public offering or private placement. The amount of the refunding bonds to be sold by the city will be determined at the time of pricing.
None of the city’s outstanding bonds benefit from such a state intercept feature, factors the city stressed in documents as a reason that favored the tender. The bonds that are not tendered will remain outstanding until maturity, redemption or defeasance.
“The purchase by the city of any offered bonds could have adverse effects on owners of the tender Bonds not purchased pursuant to this invitation, including, among others, the principal amount of the tender bonds of that CUSIP number available to trade publicly will be reduced, which could adversely affect the liquidity and market value of the tender bonds of that CUSIP number that remain outstanding,” the city warned in notices.
State officials said Thursday they could not provide any additional information. Without the refunding through the MFA, the city won’t have the money to tender the bonds, according to documents.
It’s the latest twist in a six-year saga. The once-affluent Detroit suburb in 2009 and 2010 issued $31 million of bonds to finance a $146 million film studio at a time when Michigan had the country’s most generous film tax-credit program.
But plans for the eight-stage studio soon fizzled after the state reined in the credits and the movie producer in charge of the project left for California. With no one leasing the vast facility, the city was forced to dip repeatedly into its general fund to cover the $2.6 million annual debt service on the project.
By 2012 the state of Michigan declared the city to be in a financial emergency.
In November 2014, the Securities and Exchange Commission charged the city and two former leaders with fraud related to the debt, taking the rare move of charging the public officials as “control persons.” The SEC charged that the offering documents provided to investors contained false and misleading statements about the scope and viability of the movie studio project, as well as Allen Park’s overall financial condition and its ability to pay debt service.
Both officials charged agreed to the terms of their settlements without admitting or denying the SEC’s findings. The settlements were among the first to bar a former municipal official from participating in future bond offerings, effectively ending their careers overseeing muni finance.
Bank of America Merrill Lynch served as the dealer manager for the tender program. Robert W. Baird & Co. is the city’s financial advisor.
S&P downgraded the already junk-rated debt further into speculative territory on July 8, saying that it would consider any tender to be a distressed exchange. The rating agency lowered its rating to CC from B-minus on the 2009 bonds and revised the outlook to negative from positive. It lowered to CCC-plus from B-minus the rating on its remaining LTGOs issued in 2002, 2003, 2005 and 2007. The outlook on the LTGOs is stable. The city’s unlimited-tax GOs are rated B-minus and stable.
