Detroit Schools Will Test Michigan Scorn With Note Sale
Michigan’s Finance Authority plans to sell $92 million of one-year notes backed by state aid for Detroit’s public schools in the first deal tied to the city since it sought bankruptcy protection July 18.
The securities may be priced today, Terry Stanton, spokesman for Michigan Treasurer Andy Dillon, said yesterday by e-mail. The proceeds will help cover the autonomous school district’s anticipated cash-flow deficits for the fiscal year that ends in June, according to offering documents.
Detroit’s state-appointed emergency manager, Kevyn Orr, filed a record municipal bankruptcy last month after decades of decline left the city unable to pay debts and provide services. While Orr has no authority over the school district, it has its own emergency manager, Jack Martin.
The district and the city are “unrelated legal entities created and existing under different laws of the state,” according to the sale document. The school district was Detroit’s fourth-biggest employer last year, with about 7,350 workers, the document shows.
Last week, the authority sold revenue bonds for Ypsilanti Community Schools, about a half-hour drive from Detroit, with yields as high as 4.82 percent for tax-exempt debt maturing in August 2026, according to data compiled by Bloomberg. The sale came after three other issuers in the state -- Genesee County, Battle Creek and Saginaw County -- postponed offerings that followed Detroit’s bankruptcy because rates were too high.
Standard & Poor’s rates the one-year Detroit school debt SP-1, its second-highest grade on short-term securities. The notes have first claim to state-aid revenue for repayment.
Interest rates on short-term municipal notes have increased more slowly than those of longer-maturing bonds since Detroit sought court protection, listing about $18 billion in debt.
The yield on a benchmark index of AAA one-year municipal securities was 0.32 percent yesterday, up 0.01 percentage point from July 18 and from this year’s low of 0.21 percent in February, data compiled by Bloomberg show. That compares with steeper gains for indexes of 10-year and 30-year debt, which have risen 1.16 percentage points and 1.89 percentage points this year.
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