CHICAGO — The Michigan State Building Authority plans to sell $221 million of fixed-rate refunding bonds next week in what will be the state’s first entrance into the market since it and the authority were downgraded late last month.
Officials said the restructuring would save roughly $10 million a year through 2020.
The sale was originally scheduled for late July but was delayed due to the market, according to the finance team. Fitch Ratings downgraded Michigan’s credit rating to A-plus from AA-minus and the SBA’s revenue debt to A from A-plus days before it was set to enter the market in July.
“We’re going to pay slightly higher interest rates, but the downgrade didn’t affect the state’s decision on when [to go to market] or how,” said Wayne Workman, the state’s financial adviser with Robert W. Baird & Co. “We slowed the deal up for a couple weeks because the interest rates were higher and we didn’t have the savings we were looking for.”
On Aug. 12 the SBA plans to sell $221 million in refunding revenue bonds in order to restructure debt originally issued in 1998 and 2001. JPMorgan will act as lead underwriter on the transaction, leading a team of seven additional banks. Dickinson Wright PLLC is bond counsel.
“This is not for short-term budget relief, it’s for very long-term relief,” Workman said. “By taking advantage of the market conditions we have now we can save the state of Michigan $10 million a year through 2020, and then $8.9 million a year through 2027.”
Ahead of the sale, Moody’s Investors Service affirmed its A1 rating with a negative outlook on the debt, one notch below Michigan’s general obligation rating of Aa3 with a negative outlook. Standard & Poor’s rates the debt A-plus with a stable outlook.
The bonds are payable from rentals due under state lease agreements and are limited obligations of the authority.
The 2001 bonds, which total roughly $17 million, were originally issued to pay for construction of a prison located in the Upper Peninsula that the state has since closed, said Debbie Roberts, the SBA’s executive director.
The authority is considering enhancing the bonds with insurance but will not make a decision until next week, Workman said.
The bonds are likely to still be attractive to buyers despite the downgrade, according to one investor.
“In light of the downgrade, [the debt] will come cheaper than it has over the last 10 years or so, but I think it will get a pretty good reception because of the pricing,” said Matt Dalton, chief executive officer at Belle Haven Investments. “It’s a different name than Detroit, and anything at the state level gets a better reception.”
A key debt issuer in the state, the SBA has about $3 billion in outstanding debt, accounting for more than 40% of Michigan’s total tax-supported debt. Only about $96 million of the authority’s total debt portfolio is floating rate.
Roberts, the director, said the SBA is considering issuing new money debt later this year depending on construction needs.