Michigan Offers First G.O. Since Detroit Bankruptcy: Muni Deals

Michigan plans to sell $30 million of debt this week in its first general-obligation offer since Detroit’s historic bankruptcy froze the market for the state’s debt.

This week’s sale of taxable securities will refinance bonds that fund environmental clean-up programs. Investors are demanding higher yields on its 10-year general obligations than on those from lower-rated states.

Michigan has an Aa2 grade from Moody’s Investors Service, the third-highest rank. The yield spread on the state’s tax-exempt securities is 0.59 percentage point, or about 20 percent wider than the average this year, data compiled by Bloomberg show. The figure reached about 0.75 percentage point in August, after the Motor City filed the nation’s biggest municipal bankruptcy July 18.

In comparison, investors demand less than 0.1 percentage point of extra yield on borrowings of New York, with the same Moody’s grade, Bloomberg data show. California, two levels lower, trades at a spread of 0.35 percentage point.

“The market’s shown there’ve been a number of other deals that have been done and we’re just confident that this deal will go through without any issues,” said Terry Stanton, a spokesman for Treasurer Kevin Clinton.

Revival Time

Bond sales in the state are reviving. Issuance in Michigan shrank the month after Detroit’s bankruptcy to the slowest in a decade. The city of Battle Creek and the counties of Genesee, Saginaw and Oakland postponed a combined $481 million of borrowing. Battle Creek and Genesee have since returned to the market. Oakland borrowed in a private placement.

Michigan last issued general obligations in April, when it sold federally taxable debt. Twenty-year bonds in that offer were priced to yield 3.8 percent, or about 0.8 percentage point more than 30-year Treasuries, data compiled by Bloomberg show.

Michigan joins issuers from California to Massachusetts offering about $6.9 billion in long-term debt this week, up from last week’s $4.9 billion. Benchmark yields are near the lowest in four months.

Individuals pulled about $500 million from muni-focused mutual funds in the week through Oct. 30, the least since September.

The Michigan bonds, which will price Nov. 6 and mature in December 2015, fund projects such as improving water quality and pollution control.

Moody’s cited as a strength the stabilization of the state’s auto industry since 2009. The company also said the state of 9.9 million people can withstand Detroit’s struggles, as “there is no evidence the city’s fiscal crisis will trigger state budget burdens in the form of extraordinary financial support.”

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