CHICAGO -- The state of Michigan may come to market in the next several weeks with a $450 million bond deal to finance a controversial new hockey stadium in Detroit.

The deal, the largest financing for a Detroit project since the city filed for bankruptcy in July 2013, is expected to be a mix of tax-exempt and taxable debt structured as limited-obligation revenue bonds.

The taxable piece, expected to total $200 million, will be privately placed with Comerica Bank.

A sale of the $250 million tax-exempt bonds that had been expected to price in early November, has since been pushed back.

The closing is now expected in December, according to Michael Shore, spokesman for the Michigan Strategic Fund.

The strategic fund will sell the bonds on behalf of the Detroit Downtown Development Authority.

Proceeds from the debt will finance construction of a $650 million new home for the Detroit Red Wings hockey team, owned by influential Detroit family the Illitches, which also owns the Detroit Tigers baseball team and the Little Caesars pizza chain. The development also calls for a 45-block mixed-use residential and entertainment district surrounding the arena, just outside Detroit's traditional downtown borders.

Supporters, including Gov. Rick Snyder, say the arena will spark economic development across the city, which is expected to emerge from bankruptcy by the end of the year. Critics, including muni market analysts and conservative think tank Mackinac Center for Public Policy, say the deal diverts badly needed tax revenue away from the city's schools and that publicly financed sports arenas often fail to spark the economic development touted by supporters.

The strategic fund, which helps finance public and private development across the state, approved the $450 million financing in September.

Bank of America-Merrill Lynch is the underwriter on the public portion of the deal.

According to a presentation by the finance team at the September meeting, the taxable bonds, which were to be privately placed with Comerica Bank, are likely to include interest-rate swaps.

The tax-exempt bonds were to feature a 4.5-year mandatory tender, according to the bond documents presented to the strategic fund board.

They were to be backed by a pledge by the downtown development authority of just under $13 million a year and up to $15 million a year, generated from tax increment revenues. The bonds are also expected to feature a contribution by the development authority of $64.5 million from other tax increment revenues.

The tax increment financing proceeds will be sent directly to the bond trustee, which will set aside debt service and reserve requirements before sending the rest back to the DDA.

Proceeds from the tax-exempt bonds will also fund a debt service reserve fund equal to six months of debt service, capitalized interest of not more than $10 million, and other costs.

The final maturity on all the debt was expected to be 2045. A mandatory tender on the tax-exempt bonds could come at 4.5 years after the issuance, at which point the bonds will be subject to a tender purchase and be remarketed.

The $200 million Series B bonds will be backed by $11.5 million of payments from Olympia Development of Michigan, the development arm of the Illitches. The bonds have to be taxable because of the private payments.

The refinancing risk associated with the mandatory tender, as well as other risks in the project, is partly why the bonds could fetch a junk rating from Fitch Ratings, according to the presentation. Fitch Ratings has yet to rate the debt.

The strategic fund's vote was the last major obstacle to the project, which has sparked controversy in the bankrupt city. The price tag totals $650 million, the bulk of it raised from the two borrowings. The 18,000-seat arena will be just outside downtown Detroit and is seen as an anchor for a 45-block area that will feature entertainment, retail and residential development.

Dykema Gossett PLLC is bond counsel for the DDA.

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