CHICAGO Standard & Poors yesterday upgraded its rating for the Michigan State Housing Development Authority as that state plans to bring about $190 million of bonds to market in two issues in coming weeks one for its single-family home loan program, which is growing in contrast to many other similar housing agency programs in other states.
Standard & Poors upgraded the issuer credit rating to AA from AA-minus, noting three years of income growth for the housing authority, which has bucked the national trend. The rating also applies to debt supported by the authoritys general obligation pledge, analyst Karen Flores said.
The upgrade comes as the authority plans to bring its first sale of new bonds for the single-family home loan program since 2003, said Jeff Sykes, the financial manager for the authority.
The authority will issue $80 million of new-money revenue bonds to fund its growing single-family loan program. The majority of the sale will be variable-rate bonds, with about $25 million of fixed-rate bonds, Sykes said. The authority expects to price the fixed-rate portion Aug. 31, with the variable-rate pricing prior to closing Oct. 5, he said.
The housing agency also plans to issue $111 million of bonds for its multifamily housing loan program, Sykes said. That sale will include $71 million of bonds for new loans and for a new preservation loan program. The majority of the sale will be variable-rate bonds issued in late September. The authority expects to price the fixed-rate portion Sept. 7, he said.
Merrill Lynch & Co. is the senior manager on the multifamily loan program bonds. Lehman Brothers will act as the senior manager for the single-family loan program bond issue, Sykes said.
Moodys Investors Service and Fitch Ratings do not rate the housing bonds, Sykes said.
The rating upgrade from Standard & Poors follows three years of improved income, in large part due to the balance that comes from managing a single-family loan program and a multifamily loan program, Flores said. The multifamily mortgage program tends to provide stable income in contrast to the single-family sector, where low interest rates have introduced competitive pressure for single-family home loan programs.They do sort of tend to counter balance one another because the single-family mortgages tend to be real responsive to interest rate shifts, analyst Jeff Previdi said. The advantages of mortgages provided by tax-exempt bonds become less when interest rates are low at competing commercial lenders, he said. In addition, refinancing and pre-payment of loans tend to occur less with multifamily borrowers, he said.
Michigan also has taken advantage of lower interest rates with a combination of variable-rate debt and swaps. The authority was one of the first housing agencies to use more complex financings to balance out its portfolio and hedge interest rate risk, Previdi said.
They jumped in and issued a lot of variable debt, he said. And it turned out to work for them.
The authority expects to be in the market more often in the coming years, with as many as three bond sales a year, Sykes said. The single-family home loan program has grown since the Legislature expanded the size of loans available to borrowers and loosened eligibility requirements, Sykes said.
We will be in the market much more routinely now, Sykes said. The program has just exploded.
The program has seen a three-fold increase since the legislation was approved earlier this year.
