DALLAS -- The Michigan Finance Authority's successful restructuring of $226.3 million of Detroit Public Schools bonds helped the district earn a two notch ratings upgrade.
Moody's Investors Service upgraded DPS' issuer rating to B2 from Caa1 Friday and credited the recent refinancing of DPS's general obligation state aid revenue bonds in part for its decision.
The outlook is stable at the higher rating, which remains speculative grade.
Though Moody's assigns an issuer rating, it doesn't have an underlying rating on any of the bonds DPS has issued.
"The refinancing of this debt … finalizes all of the parts of the debt obligations that will be paid by dedicated taxes of DPS and the projected repayment schedules going forward," said Moody's.
Moody's warned that DPS' ability to repay its debt remains highly dependent on the district's weak tax base, which is pressured by ongoing labor market, valuation and population challenges within Detroit.
On Sept. 14, the finance authority refinanced DPS' outstanding general obligation state aid revenue bonds through a private placement with JP Morgan Chase Banks.
An existing operating levy of roughly $50 million to $60 million per year will go to pay off debt service on the refunding bonds. Michigan Treasury spokeswoman Danelle Gittus said the levy expires in 2022 but will provide revenue collections through the bonds' maturity.
The refinancing resolved the fate of the existing 2011 and 2012 bonds that had lost their investment grade ratings amid uncertainty over how they would be handled after the restructuring of Detroit Public Schools split the district into two entities on July 1.
The bond restructuring came in connection with a $600 million package state lawmakers approved this year as the district grappled with insolvency.
The new Detroit Public Schools Community District operates schools and will receive the future state aid payments that had secured the $212 million of 2011 and 2012 bonds.
Those bonds also carry a limited tax general obligation backing.
The former district, referred to as Old Co, remains intact solely to continue to collect its tax millage and repay its tax-backed bonds and will become the obligor of the state aid bonds Oct. 1 when the aid shifts to the new district that operates schools.
The MFA did not announce how it planned to restructure the bonds until shortly before it placed the restructuring debt, leaving rating agencies and other market participants to worry over the bonds' fate.
In September Moody's shifted its outlook on DPS to developing from negative saying that the rating could move in either direction depending on the district's restructuring was resolved. The rating agency does not rate the new Detroit Public Schools Community District.
