Dallas – Detroit's proposed refunding of $660 million of general obligation debt now moves to the city's fiscal oversight commission for review after winning City Council approval.
The deal, which would mark the city's first GO issue since exiting Chapter 9 bankruptcy protection in late 2014, is projected to generate savings of about $40 million that the city would use to provide budgetary and property tax relief, said John Naglick, Detroit's finance director.
The council approved the refunding at a meeting Tuesday. Naglick said the issuance now heads to the Detroit Financial Review Commission, the city's post-bankruptcy oversight board, which next meets on June 27. The council's Budget, Finance and Audit Committee approved the necessary bond authorizing resolutions last Wednesday.
"If all goes according to plan, the bonds will be in the market either the last week of July or the first few days of August," Naglick said.
Mayor Mike Duggan's administration wants to refund up to $275 million of unlimited tax GO bonds sold in 2014 and as much as $385 million of limited tax GO bonds sold in 2010 and 2012. The bonds were issued through the Michigan Finance Authority and carry a backing of the city's state distributable aid.
First Southwest is financial advisor to both the MFA and the city. Barclays is the lead underwriter. Legal firms working on the deal include Miller Canfield Plc and Dickinson Wright PLLC. In Michigan, a local unit of government can only pledge such distributable state aid on bonds issued by the MFA. Accordingly, the advisors and underwriters were selected by the MFA.
Naglick said that savings on the LTGO bonds will benefit Detroit's general fund budget by approximately $15 million, while savings on the UTGO bonds of $24 million will be used to lower the debt millage on the city's property owners.
Detroit filed for the largest municipal bankruptcy in the U.S. in July 2013 and exited Chapter 9 in late 2014. In August 2015, in its first post-bankruptcy bond sale, the city sold $245 million of local government loan program revenue bonds through the MFA at a steep premium.
The debt was enhanced with a statutory lien and intercept feature on the city's income taxes, which landed the deal an A rating from Standard & Poor's, which rates Detroit stand-along GOs deep in speculative-grade territory. The refunding deal would mark the Motor City's first GO issuance since leaving bankruptcy in December 2014 after shedding $7 billion in obligations, though the deal would rely on the state aid commitment to support the credit, rather than the city's own junk-bond level ratings.
The city's 2010, 2012, and 2014 distributable state aid backed bonds carry ratings that range from the single-A to double-A level depending on whether they are secured by a first, second, third or fourth lien. Naglick said that city will seek updated ratings from Moody's and S&P.
The city will promote its balanced operations as it heads into the market. Duggan said in February that the city was on track to finish fiscal year 2016 with a balanced budget and to deliver a third straight balanced budget for fiscal 2017, something it had not done since 2002.
