CHICAGO — Detroit Public Schools’ new chief financial officer says the district’s upcoming $239 million deficit bond sale will help put it on the road to stable fiscal health, allowing it to avoid the short-term borrowing it has relied on for years and erase a chunk of its structural deficit.

The district plans to price sometime between Wednesday and next week, as the finance team monitors the market and gauges investor interest, the district’s new chief financial officer, William Aldridge, said in an interview Monday.

The Michigan Finance Authority will issue the debt. Siebert Brandford Shank & Co. is senior manager and JPMorgan is co-senior. Lewis & Munday PC is bond counsel and Public Financial Management Inc. is the district’s financial advisor.

The transaction will convert a chunk of 2011 short-term notes into 10-year bonds. The structure is modeled after a 2005 DPS transaction that converted $213 million of Michigan state aid notes into 15-year bonds.

The 2011 bonds are subordinate to the 2005 debt, a requirement by Assured Guaranty Ltd., which insures the 2005 debt. They are payable from state aid and backed by the district’s limited-tax general obligation pledge.

Standard & Poor’s rates the bonds A-plus based largely on an intercept mechanism that sends state aid directly to a trustee, bypassing the district and its fiscal woes, as well as strong coverage levels.

The district hopes those features — the state aid pledge, intercept mechanism, and strong coverage levels — will help attract investors despite chronically negative headlines, Aldridge said Monday. “This is structured so that there is significant control,” he said. “It’s a state-aid-driven transaction.”

State aid is expected to provide seven times coverage for the 2005 and 2011 bonds, he noted.

Proceeds will help convert two-thirds of the district’s estimated $327 million structural deficit into long-term debt and eliminate borrowing needs for at least one year.

“Based on our analysis of these bonds, our cash flow will be stabilized and we’ll be able to, with operating cuts and savings, get our accounts payable down to 60 days by the end of the year and eliminate $200 million in our general fund deficit,” Aldridge said.

The deal comes months after Gov. Rick Snyder created a statewide educational authority that will take over Detroit’s worst-performing schools starting next year, and eventually take on struggling schools elsewhere in Michigan.

The Education Achievement Authority will siphon off some of the district’s per-pupil state aid revenue, though it remains unclear how much. The finance team listed the EAA as a special investor consideration in preliminary bond documents.

Under one scenario in which the EAA would take over schools serving 20,000 of DPS’ 73,000 students, debt-service coverage would remain at relatively strong levels, according to Aldridge.

“That to me is a worst-case scenario,” he said. “The strength of this transaction is even with the EAA, we’re going to have over 3.75 times’ coverage.”

The uncertain impact of the EAA will make budgeting more complex this year. Aldridge said he plans to start the budgeting process early and come up with several different budgets to adjust to the EAA as the authority’s plans become clearer.

Aldridge noted that DPS emergency manager Roy Roberts will also act as the EAA board chair.

“Mr. Roberts has committed that no decision is going to be made that’s going to negatively impact DPS, and he controls both,” he said.

The threat of bankruptcy, which hung heavy over the district for the past few years, has now receded slightly. The state Education Department, when approving the DPS’ deficit-elimination plan last summer, conditioned its approval on a provision saying the emergency manager could not even make a request for bankruptcy.

At the same time, Michigan’s newly written law prohibits a school district’s emergency manager from declaring bankruptcy without state approval.

Investors eying the bonds said even with the protections built into the borrowing, DPS will likely be forced to pay a penalty for negative headline risks and ties to the long-struggling city of Detroit.

“It’s possible they’re moving in the right direction, but it’s still very fluid,” said Brad Reynolds, chief investment officer for Troy, Mich.-based investment firm LJPR LLC, which buys Michigan debt and owns some older DPS bonds.

Reynolds said the district has made some strides under emergency management but “to completely fix it, you still have to look to the city of Detroit.”

“It’s still a very fluid situation with Detroit’s budget and population decline,” he said. “It’s difficult to collect taxes from burned-out properties.”

Reynolds added that the impact of the EAA is a “wild card” for investors. “The other issue is, there’s this skeptical view of whether the state is going to be able to run it any better.”

Aldridge agreed that the fate of the two entities are deeply entwined, but said the city is improving under Mayor Dave Bing’s administration.

“There are many promising signs in terms of Detroit coming back, and we want to do our part,” he said.

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