The Michigan Finance Authority began issuing about $1.8 billion of revenue bonds on behalf of the Detroit Water and Sewerage Department to finance the purchase of debt from investors last week.
The sale includes a $121 million uninsured senior-lien portion maturing in July 2044 that’s being offered at a 4.97 percent yield, according to three people with knowledge of the terms who requested anonymity because the deal isn’t final. The rate is 1.85 percentage points more than benchmark munis, data compiled by Bloomberg show.
Water and sewer bondholders are among the final obstacles to resolving Detroit’s record bankruptcy after the city reached deals with general-obligation investors and pensioners. Should the refinancing proceed as planned, investors and bond insurers would drop objections to the water and sewer portions of Detroit’s debt-cutting plan, which may make it easier for the city to exit bankruptcy. Any original debt still outstanding would be unaffected.
Detroit won investment grades on its new water and sewer bonds from Standard & Poor’s today, getting a BBB+ rating, the eighth-highest rank. S&P’s rating is the highest among the three biggest credit raters.
Moody’s Investors Service released a report late yesterday that rated the senior-lien bonds Ba2 and the second-lien debt Ba3. Those grades are four and five steps lower than S&P’s, respectively. Fitch Ratings assigned grades of BBB- and BB+, two and three levels lower than S&P’s, respectively.
The refinancing is supposed to save $11.4 million a year for the first 19 years of the deal, Nicolette Bateson, chief financial officer for the water and sewer department, said in court yesterday. It would also raise $150 million for projects to improve the city’s sewage system.
Some bonds are backed by Assured Guaranty Municipal Corp. and National Public Finance Guarantee Corp., according to the people with knowledge of the deal.