DALLAS — Junk-rated Allen Park, Mich. could see an upgrade of one or more notches if it can successfully restructure $16.4 million of bonds issued to finance a movie studio project, said Standard & Poor’s.
The rating agency revised the outlook on the city's limited-tax and unlimited general obligation debt to positive, but said any positive momentum depends on the structure of its remarketing debt and updated debt service schedules.
S&P rates the city’s deep in junk territory, with the limited-tax GOs at CCC-plus and the unlimited-tax GOs at B-minus.
"The positive outlook is due to our view that following planned debt restructuring, the city's capacity to support both its limited-tax and unlimited-tax debt service obligations could improve," said S&P credit analyst Caroline West in a March 24 report.
In the summer of 2015 Allen Park launched a tender in an attempt to put behind it the bond-related problems that brought federal securities charges up on the city.
Holders of $11.2 million, representing 42% of the bonds, accepted the tender offer. On Oct. 26, the city entered into purchase agreements with bondholders to sell another $5.2 million at the offered prices and under the same terms and conditions.
The tender was successfully completed at a price above par in November through a borrowing completed by the Michigan Finance Authority. The 2015B bonds have a mandatory tender date of no later than Sept. 1, 2016.
The city is currently exploring how to remarket and potentially restructure that debt.
While a successful restructuring would improve the city’s capacity to support its debt service, it wouldn’t remove the risk of default on Allen Park’s limited-tax GOs, S&P said.
“We continue to view overall credit quality as very weak, and continue to apply our CCC category criteria to the city's limited-tax GO debt, reflecting our belief that nonpayment on the city's limited-tax debt remains a risk,” analysts wrote.
Allen Park, a once-affluent Detroit suburb, in 2009 and 2010 issued $31 million of bonds to finance a $146 million film studio at a time when Michigan had the country's most generous film tax-credit program.
But plans for the eight-stage studio soon fizzled after the state government reined in the credits and the movie producer in charge of the project left for California. With no one leasing the vast facility, the city was forced to dip repeatedly into its general fund to cover the $2.6 million annual debt service on the project.
By 2012, the state of Michigan declared the city to be in a financial emergency. In November 2014, the Securities and Exchange Commission charged the city and two former leaders with fraud related to the debt, taking the rare move of charging the public officials as “control persons.”
