Kellogg Home Is 2nd Michigan Issuer to Delay Bond SaleEmily Freeman
Battle Creek, home of Kellogg Co., became the second Michigan municipality to postpone a bond sale following Detroit’s record bankruptcy.
Battle Creek, about 120 miles (193 kilometers) west of Detroit, had planned to sell $16 million of general-obligation bonds on Aug. 14. It delayed the sale because of market conditions and plans to offer the debt, which will be used to finance capital-improvement projects, within a month, said Linda Morrison, the city’s finance director.
The Cereal City, as Battle Creek is known, joins Michigan’s Genesee County, which postponed a $54.2 million bond offer planned for Aug. 1. The delays are a sign that issuers in the state are being penalized by Detroit, which sought court protection on July 18.
“The market is so volatile right now,” Morrison said. “We are positioned and ready to go, but strategically we just want to wait a little to see what the market will do. We do have plans to go forward with this bond deal.”
Battle Creek’s bonds have an Aa3 rating from Moody’s Investors Service, the fourth-highest level. The company revised its outlook on the city’s credit yesterday to negative, citing its expectation that “the local economy will continue to be relatively challenged” amid declining property values and elevated unemployment, in a report.
Investors in the $3.7 trillion municipal market have demanded higher yields to own Michigan debt in the past month on speculation that a plan to impose discounts on Detroit general-obligation bonds would set a precedent in the state and nationwide. Kevyn Orr, Detroit’s emergency manager, had proposed paying pennies on the dollar for some general-obligation debt before the city became the biggest U.S. municipal bankruptcy.
The extra yield buyers require to own 10-year general-obligation securities sold by Michigan rather than top-rated debt rose to 0.44 percentage point on Aug. 2, the most since July 12, data compiled by Bloomberg show.
“I don’t think anyone is going to look at Battle Creek and affiliate us with the city of Detroit,” Morrison said. “Just the market as a whole is uncertain with what’s happened with Detroit.”
The state plans a $9.89 million sale of transportation refunding bonds next week, with the securities maturing in about one to 10 years, according to a preliminary statement. Terry Stanton, a spokesman for state Treasurer Andy Dillon, said recently that Detroit’s “incredibly unique situation” shouldn’t affect investor views of Michigan credit.
The offering is rated Aa2, the third-highest level, by Moody’s Investors Service, matching its previous grade for the state’s general-obligation debt, according to a statement today from the New York-based company. The new issue will be backed partly with state fuel-tax revenue, Moody’s said.
Saginaw County, north of Detroit, still plans to sell $61 million of general obligations on Aug. 8. Robert Belleman, Saginaw County’s controller, said any decision to postpone the deal will be solely based on interest rates.