CHICAGO — Allen Park, Mich. received a positive review from Standard & Poor's for its advancing efforts to shed some its troublesome $26.3 million of debt issued for a failed film studio.
Allen Park launched a tender offer over the summer in an attempt to put behind it the bond issue that brought federal securities charges upon the city. Holders of $11.2 million, representing 42% of the bonds, accepted the tender offer.
The city reported in a Nov. 5 disclosure that it since received unsolicited offers from holders to sell another $5.2 million at the offered prices and under the same terms and conditions. The city entered into purchase agreements with holders on Oct. 26. Prices for most of the bonds will be purchased for 103% with one insured piece being purchased for 108%.
The notice followed one posted a day earlier extending the settlement date to Nov. 19 from Nov. 5. The city previously had extended the deadline from Oct. 14. The city is still working out details on the refunding bonds that would be issued to cover the city's purchase.
The Michigan Finance Authority would issue the new bonds on the city's behalf which is expected Nov. 19 with the aim being to ease current costs.
With the exchange proceeding, Standard & Poor's late Thursday raised its rating on the 2009 bonds multiple notches to CCC-plus from CC, bringing it in line with the city's other limited-tax GOs from series issued in 2002, 2005, 2007, and 2010. At the same time, analysts placed all of the city's limited-tax debt on CreditWatch with positive implications.
The rating agency affirmed the B-minus rating on the city's unlimited-tax debt from a 2003 issue. The outlook on that credit is stable. All of the ratings are multiple notches into speculative territory.
The rating change "reflects our opinion that the terms of the tender do not constitute a distressed exchange," Standard & Poor's analyst Caroline West wrote. "The bonds' placement on CreditWatch with positive implications reflects our view that once the city has purchases the 2009A and 2009B maturities that were tendered or offered unsolicited, the city's ability to support its limited-tax debt service may improve by one notch.
Analysts will act on the CreditWatch placement after a review of the structure of the additional debt financing, the purchase of those particular maturities, and the city's updated debt service schedules.
"While we no longer view the tender offer as possibly being a distressed exchange, we still consider the city's overall credit quality to be very weak, as reflected in its unlimited-tax GO and limited-tax GO ratings, and as represented in the city's desire to offer the tender," the rating agency wrote.
The bonds, sold in a taxable limited tax general obligation series and a LTGO recovery zone facility bond series in 2009, bear coupons of between 5% and 7.25%.
The city wants to issue limited tax LTGO bonds through the MFA backed by a new pledge of state aid layered over Allen Park's limited full faith and credit pledge. The aid pledge would include an intercept mechanism sending funds directly to the trustee.
The 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." The SEC charged that the offering documents provided to investors contained false and misleading statements about the scope and viability of the movie studio project, as well as Allen Park's overall financial condition and its ability to pay debt service.
Both officials agreed to the terms of their settlements without admitting or denying the SEC's findings. The settlements were among the first to bar a former municipal official from participating in future bond offerings.
Bank of America Merrill Lynch served as the dealer manager for the tender program. Robert W. Baird & Co. is the city's financial advisor.