Preliminary bond documents are posted for Detroit's first post-bankruptcy bond sale.

CHICAGO — Detroit's first public bond sale since its bankruptcy advanced Thursday as the city posted preliminary bond documents for the deal.

The sale through the Michigan Finance Authority is tentatively set for Aug. 19.

City officials and the finance team are expected to hold at least two investor presentations ahead of the sale.

Barclays is the underwriter.

The borrowing will mark Detroit's first public market access since it exited the largest municipal bankruptcy in the U.S. last December. To attract investors who might be put off by the city's high-profile default on all its bond debt in 2013, Detroit, through a new state law, has enhanced the bonds with a statutory lien on income-tax revenue and an intercept feature that has the income-tax revenue routed first to a bond trustee before the rest is sent back to the city.

Standard & Poor's has assigned an A rating to the debt, largely reflecting the statutory lien and intercept feature. A piece of the income-tax revenue, estimated at roughly 8%, will first be sent to the police budget, a pledge that is senior to bondholders' under the deal.

The city will use proceeds of the $245 million to repay Barclays for a $275 million loan the city used to finance its Chapter 9 exit in December. The city is redeeming $30 million of the original bonds, which it's able to do after various consultants and attorneys agreed to discount their bankruptcy fees.

Detroit continues to carry junk-level ratings from the three major ratings agencies.

Preliminary bond documents outline the uncertainty of how the liens would play out in a federal bankruptcy court.

"The bankruptcy court would not be bound by legal opinions other than binding precedent, and there currently is no binding precedent regarding these matters," the documents say. "Thus, the opinion of bond counsel to the city is not (and cannot be) a guaranty that the pledged income tax revenues would be treated as subject to a statutory trust or lien."

Other risks include the possibility of another bankruptcy filing; the uncertainty of future income tax revenue; limitation on rate of income tax; and the city's economic and fiscal condition, among others, according to bond documents.

Detroit's bond counsel is Miller Canfield Paddock & Stone PLC; McDermott Will & Emery LLP and Dykema Gossett PLC are underwriters' counsel. Dickinson Wright PLLC delivered the legal opinion on the original bond approval in December 2014.

The deal is divided into two series: $134.7 million of local government loan program revenue bonds, which include a 2029 term bond, and $110.3 million of federally taxable local government loan program revenue bonds, which include a 2022 term bond maturity.

Debt service on the 2029 bonds does not begin until 2020, then rises from $2 million in 2020, spikes to $15.4 million in 2023 and rises steadily to $21.7 million in 2029.

Debt service on the 2022 bonds begins in 2018 with a $13.4 million payment, which rises to $23.6 million in 2019, through $25.9 million in 2022.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.