CHICAGO -- After a six-month delay to allow the market to digest Detroit's bankruptcy, Saginaw County, Mich. is bringing $52 million of pension obligation bonds to market Thursday.
Saginaw was one of a handful of local credits that postponed deals last August as investors backed off Michigan general obligation bonds after Detroit announced it would default on its GOs and then filed for the largest municipal bankruptcy in the U.S.
"Overall it was not favorable for us when we went out in August," said Saginaw County Controller Robert Belleman.
"There were many factors, and Detroit was one of them," he said. "We believe the market has rebounded and interest from investors has increased."
Saginaw will be the third Michigan government to take advantage of a new state law that allows certain governments to issue limited-tax GO bonds to cover their retiree obligations.
The other two, Oakland County and Bloomfield Township, are rated triple-A. Oakland County privately placed its bonds.
Moody's Investors Service rates the Saginaw County bonds Aa3, and rates the county's unlimited-tax GO pledge Aa2. The finance team will decide whether to insure the bonds based on the spreads over the next few days, according to Kelli Lambrix of Public Financial Management Inc., the county's financial advisor.
With interest rates on the rise, Saginaw will likely pay at least a 1% higher interest rate than it expected to when it first crafted the deal last spring.
Then, the county expected to pay around 3.6%. Belleman said at the time they would likely pull the deal if they had to pay more than 4.25%.
Now an interest rate in the high 4% or low 5% range is more likely.
The new deal, however, is smaller and shorter than the original deal, which totaled $60 million and matured in 2033.
This week's offering totals $51.9 million, based on the reported actuarial valuation of the liability as opposed to the market value. It has a final maturity of 2028.
"We think that the actuarial value is closer to what we believe we need and we were concerned about overfunding the plan unnecessarily," Belleman said.
The borrowing will also allow county officials to budget more accurately over the long term, Belleman said.
"Payments will flatten out, so we will know long-term what our obligations are," he said. "The issue with pay-as-you-go is that they're actuarially adjusted every year, so they can change rapidly."
The county's annual required pension contributions increased by 53% from 2010 and 2012. They are expected to total $6.2 million in 2014 and spike to nearly $11 million by 2026 before dropping off steeply in 2027 and stopping altogether in 2030.
Debt service on the bonds, meanwhile, is expected to rise from $2.6 million in 2014 to $4.6 million in 2028, depending on final interest rates and whether the bonds are insured, according to preliminary bond documents.
Proceeds will be deposited into the state's Municipal Employees Retirement System to pay off the county's entire liability.
Saginaw closed its defined-benefit plan in the late 1990s.
Fifth Third Securities and Stifel Nicolaus are the underwriters. The team originally included Bank of America Merrill Lynch but the county opted to drop the firm as the new deal was put together.
Dickinson Wright PLLC is bond counsel and Public Financial Management Inc. is financial advisor.
