CHICAGO - Kalamazoo, Mich. this week is expected to sell $90 million of bonds to fund retiree health care benefits.
The taxable limited-tax general obligation bonds are rated AA-minus by Standard & Poor's. The deal includes serial bonds that mature through 2029 and a pair of term bonds that together make up $64 million and mature in 2034 and 2044.
Kalamazoo becomes the latest in a series of local governments across Michigan to bond out either their pension or other post-employment benefits liabilities. Macomb County, which borders Detroit, expects to bring $260 million of federally taxable OPEB bonds to market in the first quarter of the year.
Kalamazoo's health care plan has nearly 1,500 members and an unfunded liability of $187.8 million as of early 2014, according to preliminary bond documents. That was projected to drop to $120 million by the end of 2014 because of various factors, the city said. After depositing the $90 million in the trust, the remaining liability is expected to total just under $30 million.
The city expects that debt-service payments over the life of the bonds will be less than pay-as-you-go contributions, according to bond documents.
Bank of America Merrill Lynch is senior manager with Hutchinson, Shockey, Erly & Co. also on the team. Miller, Canfield, Paddock and Stone PLC is bond counsel. Robert W. Baird & Co. is financial advisor.
Since 2012, Michigan governments that meet various criteria, including being rated double-A or higher, have been allowed to sell bonds to pay off either their pension or other post-employment benefits liabilities; bonds can only be issued to fund defined benefit pension programs if they are closed to new hires as part of a shift to a defined-contribution retirement plan.
The legislation was originally set to expire on Dec. 31, 2014, but lawmakers have extended the sunset until 2015.
Elsewhere in Michigan, Ottawa County sold $29 million of pension bonds in early December. Triple-A rated Oakland County privately placed $350 million of refunded OPEB bonds in September 2013 and Saginaw County has also bonded out its debt. In addition to Macomb County, Bloomfield Hills is also expected to bring retirement bonds to market soon.
