Sept 29 The Michigan Finance Authority issued
nearly $226.4 million of bonds on Thursday to refund Detroit
Public Schools debt secured in part by state aid revenue that
was subsequently diverted, according to the Michigan Treasury
The transaction leaves the original bondholders paid in full,
the department said.
The authority privately placed the refunded debt with JP
Morgan Chase Bank at a net interest cost of 3.78 percent, the
state treasury said in a statement. The transaction refunded
bonds originally sold in 2011 and 2012 and secured by the
Detroit Public Schools' (DPS) operating property tax levy and
its share of state aid.
Under a Michigan law that took effect on July 1, the school
system was split into two entities. DPS is responsible for
paying off debt using its property tax levy. State aid revenue
was funneled to a new community district charged with operating
The law was aimed at rescuing the financially struggling
school system, which has been under state control since 2009.
Uncertainty over how owners of the original limited-tax
general obligation bonds would fare due to the weakened payment
pledge led S&P Global Ratings earlier this month to drop the
bonds' ratings deeper into the junk level.
Jane Ridley, an S&P analyst, said Thursday that bondholders
emerged unscathed as a result of the refunding.
"That credit cliff is gone," she added.
Moody's Investors Service also cited uncertainty over the
bonds when it revised the outlook on DPS's Caa1 credit rating to
developing from negative on Sept. 14.
(Reporting by Karen Pierog in Chicago; Editing by Matthew