CHICAGO - Detroit is expected to come to market next week with $188.7 million of general obligation debt to raise funds for a series of capital projects and refund about $60 million of GOs.

The deal is city's first new-money transaction since late 2006. The bonds are structured to sell in four series. Series 2008A will consist of $57.1 million of fixed-rate unlimited-tax bonds. Series B is made up of $60.1 million of unlimited-tax refunding GO bonds. Series C is for $46.5 million of limited-tax capital improvement bonds, while Series D will be made up of taxable GO capital improvement bonds.

The bonds are being underwritten by SBK-Brooks Investment Corp., Merrill Lynch & Co., Citi and Loop Capital Markets LLC. Miller, Canfield, Paddock and Stone, PLC is bond counsel. Robert W. Baird & Co. and Phoenix Capital Partners are acting as financial advisers. The city is still considering whether to insure the bonds.

Proceeds from the new-money portion of the unlimited-tax bonds will finance several capital projects, including work on the Detroit Institute of Arts and a series of additional projects relating to neighborhood development, public safety, cultural recreation, and transportation. The limited-tax bonds will be used to finance acquisition of vehicles and equipment for city use and to buy or refinance property for use by the city.

In advance of the sale, Fitch Ratings affirmed its BBB rating and a negative outlook on the limited- and unlimited-tax bonds. The rating is based on "notable weakness in both the city's economy and financial position," Fitch analyst Amy Laskey wrote in a release. The negative outlook reflects Detroit's general fund deficit and continued delays in releasing its annual audits.

Standard & Poor's affirmed a BBB rating to the unlimited-tax series and a BBB-minus to the limited-tax bonds. The one-notch difference stems from the city's lack of financial flexibility, analysts said. The rating outlook is stable. While citing Detroit's ongoing deficits, chronically late audits, declining revenues, and above-average debt burden, Standard & Poor's analysts also praised the city for its commitment to eliminating its deficits and bringing its audits up to date.

Moody's Investors Service rates the unlimited-tax GOs Baa2 and the limited-tax bonds Baa3, both with a stable outlook.

The transaction will be the city's first new-money sale since late 2006. In April the city restructured nearly $800 million of insured variable-rate water and sewage revenue bonds in a transaction that marked Berkshire Hathaway Assurance Corp.'s first appearance insuring a primary market sale.

The state approved the city's issuance of the upcoming bonds in January 2007. Under Michigan law, the city must receive approval of the sale of the bonds from the Michigan Department of Treasury.

 

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