(Corrects issuer in first paragraph.)
An agency created to illuminate bankrupt Detroit plans to borrow $185 million to improve street lighting, according to a Standard & Poor’s analyst.
The Michigan Finance Authority will offer bonds, secured by a utility users tax, on behalf of Detroit’s Public Lighting Authority on June 25, analyst Jane Ridley said. The debt is rated A-, the seventh-highest investment grade, according to an S&P report.
The former U.S. auto-making capital’s $18 billion in debt led to the largest U.S. municipal bankruptcy. Some bondholders will receive 74 percent of $388 million they’re owed, under a mediated agreement.
The lighting authority was created in February 2013 to replace a city department, and was authorized to issue debt to repair a system that left swaths of the city in darkness, with an estimated 40 percent of its 88,000 lights broken.
A $60 million bond sale in December financed the replacement of thousands of broken, outdated street lights with LED lights. The authority had planned to use the new bond issue to pay off the December debt and finance more lighting repairs.
The bond sale was approved by U.S. bankruptcy Judge Steven Rhodes as part of the city’s restructuring plan to improve services.
The lighting bonds are backed by $12.5 million collected annually in a utility users tax levied by Detroit. The city doesn’t get access to the revenue until monthly debt service obligations are met, according to the S&P report. That priority is “a key credit strength” that supports the investment grade, Ridley said in the report.
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