Michigan borrowers among those pushing back deals

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Michigan's Department of Transportation pushed back its $175 million refunding of its state trunk line fund bonds to next week amid continued COVID-19-driven market turmoil.

The state had planned to come to market this week and has now pushed the pricing date to next Tuesday. The timing, however, will depend on whether it can achieve the targeted savings.

The Great Lakes Water Authority will hold off on pricing more than $1 billion of refunding bonds.

“The refunding issuances are being done for debt service savings. As with any refunding for savings, the savings would be available to fund projects or pay additional debt service," MDOT finance and administration director Patrick McCarthy said.

The MDOT is among the issues being held as the market is hammered over the COVID-19 fears with outflows and a growing squeeze to preserve liquidity.

The Detroit-area Great Lakes Water Authority Thursday said it would postpone pricing on more than $1 billion of taxable refunding bonds because of the volatility.

“The pricing will not be today,” GLWA chief financial officer and treasurer Nicolette Bateson said. “While we would like to provide more information related to the timing of this transaction, the reality is that the COVID-19 situation requires that we be adaptable to consider changing market conditions and timing.”

MDOT’s deal would refund trunk line bonds issued in 2009 and 2011 to achieve interest cost savings. The state plans to price $103 million of tax-exempt bonds that will refund 2009 bonds, generating estimated debt service savings of about $8.5 million. MDOT is also looking to price a second series of taxable bonds sized at roughly $73 million. The bonds will advance refund 2011 bonds to produce present value savings estimated at $10.9 million.

Citi is the senior manager on the tax-exempt bonds and BofA Securities is the senior manager on the taxables. Loop Capital markets and Siebert Williams Shank & Co. LLC are the co-managers on both series. PFM is the financial advisor and Dykema Gosett PLLC is bond counsel.

The bonds are rated Aa2 by Moody’s Investors Service and AA-plus by S&P Global Markets.

The state has roughly $463 million of trunk line bonds outstanding.

The bonds are secured by MDOT's portion of fuel taxes and vehicle registration fees that are distributed to the state, counties, cities and villages. Moody’s said that available revenue provides ample coverage of debt service but is expected to decline as the state ramps up issuance to meet infrastructure investment needs.

McCarthy said that the MDOT bond refunding is not associated with Gov. Gretchen Whitmer’s $3.5 billion roads funding package and said the state remained on track to issue $500 million of new bonds for the plan between spring and early summer.

Earlier this year the state’s transportation commission approved $3.5 billion in new money trunk line bonds that will be used to fund a roads plan proposed by Gov. Gretchen Whitmer. The bonds would be sold over the next four years and do not require legislative approval.

In early March, Senate Republicans who hold a majority approved a bill that would require the State Transportation Commission to notify lawmakers of its intent to issue over $100 million in transportation bonds at least 30 days before authorizing the bonds. The bill, sponsored by Sen. Roger Victory, R-Hudsonville, would give the legislature the ability to reject those bonds within 30 days.

The Senate also adopted a concurrent resolution outlining its intent not to approve spending for debt service on bonds outstanding longer than a decade or which increase spending above current levels. Both the resolution and the Senate bill are at the House of Representatives for further review. The House is controlled by Republicans.

Michigan House Republicans have proposed a new transportation-funding plan that would direct an additional $800 million toward local roads. The proposal relies on eliminating the 6% sales tax on fuel over three years and replacing it with an equivalent per-gallon gasoline tax hike.

The Democratic governor's bond-financed road plan will allow MDOT to nearly double capital spending over the next five years to $7.3 billion from $3.9 million, adding 122 projects that the agency otherwise would not have the money to do in that period.

It would also raise MDOT's annual bond debt service to $301 million from $118 million, according to MDOT's finance department.

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