Genesee County Begins Biggest Michigan Deal Since Detroit

Photographer: Jeff Kowalsky/Bloomberg

The water-revenue securities are also backed by a general-obligation pledge, which has been scrutinized by investors in the $3.7 trillion municipal market after state-appointed Detroit Emergency Manager Kevyn Orr offered to repay such bondholders less than 20 cents on the dollar. Close

The water-revenue securities are also backed by a general-obligation pledge, which has... Read More

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Photographer: Jeff Kowalsky/Bloomberg

The water-revenue securities are also backed by a general-obligation pledge, which has been scrutinized by investors in the $3.7 trillion municipal market after state-appointed Detroit Emergency Manager Kevyn Orr offered to repay such bondholders less than 20 cents on the dollar.

Michigan’s Genesee County began offering $35 million of revenue bonds in the biggest long-term debt sale in the state since Detroit filed its record U.S. municipal bankruptcy on July 18.

The issue included a portion maturing in November 2038 that was offered at a preliminary 5.61 percent yield, according to three people with knowledge of the sale who requested anonymity because the pricing wasn’t final. That’s 1.11 percentage points more than the interest rate on benchmark munis, data compiled by Bloomberg show.

The county, about 70 miles (113 kilometers) north of Detroit, may issue as much as $53 million today, Bloomberg data show. It postponed a $54.2 million deal on Aug. 1 as investors demanded increased interest rates to lend to Michigan issuers.

The water-revenue securities are also backed by a general-obligation pledge, which has been scrutinized by investors in the $3.7 trillion municipal market after state-appointed Detroit Emergency Manager Kevyn Orr offered to repay such bondholders less than 20 cents on the dollar. The move fueled concern that distressed issuers in the eighth-most-populous state might follow suit.

Penalty Drop

Genesee’s return follows last week’s deal from Battle Creek, which also put off issuance in August, helping slow bond sales in the state by the most in a decade. The municipalities are borrowing as the yield penalty on Michigan general obligations has dropped 28 percent from its August peak, data compiled by Bloomberg show.

The extra yield investors demand to own 10-year Michigan general-obligation debt instead of benchmark munis is about 0.54 percentage point, down from a 2013 high of 0.75 percentage point on Aug. 20, Bloomberg data show. The spread is still the second-highest among the 17 states tracked by Bloomberg. Only Illinois has a larger penalty.

Genesee County’s seat is Flint, a city of about 101,000 that is the birthplace of General Motors Co. (GM) and is also under a state-appointed emergency manager. Proceeds from the sale will help finance land and facilities to add water supplies from Lake Huron, according to documents released before the August offering.

The county currently buys water from Flint, which gets it from the Detroit Water and Sewerage Department. Standard & Poor’s rates Genesee County’s debt A+, fifth-highest.

The securities have insurance from Build America Mutual Assurance Co., which carries S&P’s third-highest grade, at AA. Battle Creek also used New York-based BAM in its sale.

A message left at the office of Jeff Wright, the county’s drain commissioner, wasn’t returned. Keith Francis, controller for Genesee County, didn’t return a voice-mail seeking comment.

The tax-exempt debt is being issued via negotiated sale, with a unit of JPMorgan Chase & Co. serving as lead underwriter.

To contact the reporter on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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