A state board has approved a Detroit plan to use $55 million in surplus cash to retire debt issued in 2014 as part of the city’s exit from Chapter 9 bankruptcy.
The Detroit Financial Review Commission approved the resolution at a special meeting Tuesday morning.
The money will be used to repurchase financial recovery series B bonds. Barclays Capital is the repurchase agent appointed by the city.
The notes were issued as part of the implementation of Detroit’s plan of adjustment to exit bankruptcy. The notes are unsecured and were used to pay off various creditors. Issued as term bonds, the debt has a 30-year maturity, and bears interest at 4% for the first 20 years and 6% for the last 10 years. Payments are interest-only for the first 10 years and start amortizing principal in year 11.
The city is taking steps to lower costs by allocating some of the $169 million unassigned budget surplus it has accumulated for debt repurchases.
The city expects that will exit state oversight by the spring.
Detroit closed the books on fiscal 2017 with a $53 million surplus, marking a third consecutive year of positive budget results since exiting Chapter 9. It must record three consecutive years of deficit-free budgets to win release from oversight by the Detroit Financial Review Commission under terms established as part of its exit from its historic Chapter 9 case in December 2014. Release from state oversight would allow for the local council and mayor run all city operations on a day-to-day basis.
Detroit will present the results of the latest audit at the next financial review commission meeting scheduled for Feb. 26.
The city remains deep in junk rating territory. On Dec. 21, S&P Global Ratings upgraded the city’s issuer credit rating to B-plus. The outlook is stable. Moody’s Investors Service upgraded Detroit to B1 from B2 in October.