CHICAGO — Detroit Public Schools emergency financial manager Robert Bobb said he was "very, very happy" with the final interest rates the troubled district saw on its $210 million stimulus-related borrowing Wednesday.
Bobb said investors were reassured by his assertions that bankruptcy was no longer an option — a cloud that had darkened DPS' similar sale of stimulus bonds last year.
The district sold $161 million of taxable direct-pay qualified school construction bonds and $49.5 million of taxable Build America Bonds.
The rate on the QSCBs was 6.645%, translating into a final rate of 1.63% for the district after the direct-pay federal subsidy, which totaled 5.01%, is applied.
The BABs saw a rate of 6.845%, which will translate into a final rate of 4.45% after the 35% federal subsidy is applied.
The bonds were backed by Michigan and the district's unlimited-tax general obligation pledge. They were rated in the double-A-minus category due to the state's pledge.
Siebert Brandford Shank & Co. and JPMorgan were joint book-running senior managers on the deal.
"The market was really favorable to us today," Bobb said Wednesday in a conference call with reporters to discuss the sale. "When I left New York [Tuesday night] I wasn't feeling as optimistic as I am today."
An early pricing wire from midday Tuesday indicated that the district would pay 300 basis points above the 30-year Treasury on the QSCBs and 325 basis points above the Treasury rate for the BABs.
"[Tuesday] we had a lot of interest but some of the investors were looking for much higher yields than we felt we could live with, and we wanted to see more people come to the table. The results were phenomenal," Bobb said.
The district saved $67.5 million over the 30-year life of the debt by issuing bonds using stimulus programs, Bobb said.
Last December the system sold $290 million of QSCBs and BABs. The direct-payment BABs saw interest rates from 4.59% to 7.47%.
For the tax-credit QSCBs, Detroit ended up offering a supplemental coupon of 3.19%, which, with a tax credit rate of 6.06%, meant a total yield of 9.25% for investors.
"Bankruptcy made the market a little nervous last year, and since bankruptcy is now off the table, we think that helped tremendously," Bobb said.
Earlier this year, as part of a cash-flow note sale, Bobb pledged that as long as he is emergency financial manager, DPS would not declare bankruptcy.
He added that the only benefit he could find to Chapter 9 bankruptcy was the ability to shed labor contracts, which became unnecessary after a series of successful contract negotiations earlier this year. "We couldn't see how the bankruptcy process would benefit Detroit Public Schools," he said.
The district, one of the most troubled in the U.S., still will pay more in interest than other districts based on a comparison with other recent QSCB sales.
The Cleveland Metropolitan School District, another large Midwestern district that faces fiscal challenges, priced $55 million of QSCBs on Sept. 14 and saw a 5.2% interest rate that translated into 0.26% after the federal subsidy.
The Tennessee School Bond Authority priced $212.4 million of QSCBs in mid-September and will pay no interest costs as the interest rate on the bonds was lower than the direct-subsidy rate of 4.91% set that day by the Treasury.