CHICAGO — Two small revenue deals from Michigan — a state transportation refunding and a school district financing — found buyers this week at acceptable rates, breaking a logjam on issuance from the state following Detroit's bankruptcy filing.

The Michigan Department of Transportation's competitively bid $10.1 million issue of current refunding bonds achieved savings that exceeded officials' expectation, said Ed Timpf, administrator for the department's Financial Operations Division. Morgan Stanley won the deal with a true interest cost bid of 1.78 %. The sale attracted 16 bidders Tuesday. In the other deal, Ypsilanti Community Schools sold $18.65 million of revenue bonds through the Michigan Finance Authority.

The completed sales came after three borrowers had decided to yank deals due to extraordinarily high premiums demanded by investors shaken by Detroit's bankruptcy filing on July 18 with a plan to treat the city's general obligation bonds as unsecured debt.

The Michigan DOT  had anticipated present value savings in the $750,000 to $800,000 range, but ended up capturing $917,000 in savings, or 7.6%. "We consider this a very successful bond deal," Timpf said.

The bonds retain the same final maturity in 2023. The early maturities paid yields of .25 % with the final maturity paying a yield of 3.05% with a 3% coupon. Market participants said they did not see a penalty imposed on the state sale.

The bonds were rated Aa2 by Moody's Investors Service and AA-plus by Standard & Poor's and they enjoy a first lien claim on various transportation-related dedicated taxes and fees.

"I think our Director Kirk Steudle summed it up well when he said 'the interest and bids received on the bonds are indicative of investors continuing to view the state of Michigan as a strong, worthy investment,'" Timpf said.

Ypsilanti Community Schools, which completed its sale Wednesday, didn't fare as well on yield penalties.

The debt matured between 2015 and 2026. The 2015 maturity paid a yield of 1.38 % with a 3% coupon, the 10-year paid a yield of 4.29% with a 4% coupon, and the 2026 maturity paid 4.83% with a 4.65% coupon.

JPMorgan was the senior manager and the bonds were rated A-plus by Standard & Poor's. Comparable 10-year single A rated revenue bonds paid a yield of 3.85% and the 10-year GO paid a yield of 3.55%, according to the Municipal Market Data benchmark scale.
State aid will repay the debt. The issue allows the district to consolidate and restructure its debts which came from the two previous districts that were unified to create the Ypsilanti Community Schools and will allow it to eliminate its operating deficits.

The Michigan Finance Authority is slated to return to the market next week with $92 million of one-year state aid revenue notes in a cash flow borrowing for Detroit Public Schools. The notes mature on Aug. 20, 2014.

They are being issued under a junior subordinated lien with a third priority behind a $211 million 2011 issue that matures in 2021 and a $126 million 2012 issue that matures in 2020. JPMorgan and Loop Capital Markets LLC are underwriting the sale. The notes are secured by state aid received by the district beginning in fiscal 2014, and the district's limited tax general obligation pledge.

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