School district in Michigan will refund with taxables

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Ann Arbor Public Schools in Michigan is pricing its first-ever taxable bond refunding on Monday.

The Michigan school district will price $55 million of taxable bonds to advance refund a portion of 2012 bonds for up to $4 million in savings, according to the district’s advisor, PFM.


JPMorgan and Stifel are co-senior managers. Miller Canfield PLC is bond counsel.


The district is preparing to issue the first of several deal authorized in a $1 billion bond package voters approved in November.

Ahead of the sale, Moody’s Investors Service affirmed the district's Aa2 underlying rating. Moody's kept the negative outlook it assigned in June.

“The negative outlook reflects the possibility that lack of improvement in fund balance and liquidity during a time in which the district takes on more debt could result in a lower rating,” Moody’s noted.

The district, which has just $164 million in debt now, turned to voters to approve a $1 billion, 30-year capital bond funded by 1.65-mill property tax increase to renovate aging schools dating back to the 1920s, place solar panels on the roofs of all 35 district buildings, build new classroom space to accommodate growing student enrollment and purchase buses and technology.

The capital bond was the second highest to be approved in Michigan since 1994, when Detroit Public Schools voters approved $1.5 billion toward the building and maintenance of its buildings.

The increase means Ann Arbor Public Schools tax rate will be 4.1 mills. The higher tax rate levied would cost taxpayers an average of $228 annually, based on average taxable value, the district says.

The district plans to issue the full $1 billion in authorized bonds gradually over the next decade and anticipates issuing the first series of bonds, sized between $150 and $200 million, in spring 2020.

All of the district's outstanding debt, including the 2019 bonds, is secured by a full faith and credit pledge with voter authorization to levy property taxes without limitation as to rate or amount.

The bonds are additionally secured by the State of Michigan's School Bond Qualification and Loan Program, rated Aa1 by Moody's.

The district is located approximately 35 miles west of Detroit in Washtenaw County.

Moody’s said that the state’s Schools of Choice (SOC) program has bolstered the district’s enrollment, which has grown an average 1.2% annually over the past five years to a current student population of 17,903. SOC students currently account for roughly 10% of total enrollment. District management estimates that given the current rate of development within the district boundaries, enrollment could grow by as much as 1,200 students over the next five years.

“Growing enrollment factors favorably into the district's revenue base, but the district has limited ability to raise revenues beyond that organic growth,” Moody's said.

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School bonds Primary bond market Taxable bonds Refunding bonds Michigan
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