Detroit Public Schools Emergency Manager Roy S. Roberts has announced that the District took advantage of the favorable municipal market interest rate conditions and completed a restructure of its 2005 long-term debt.
The District’s successful completion of a $141 million financing will eliminate the requirement of the insurer of the 2005 bonds to accelerate repayment on the 2005 bonds, which would have cost the District an additional $22 million per year over four years, beginning in June 2012.
Given the extremely low municipal bond rates, the District was able to both eliminate the need to accelerate the 2005 debt, as well as reduce the overall interest cost by over $8 million, resulting in a savings to the District of over $1 million per year from 2013 through 2020.
The financing was completed through the Michigan Finance Authority. The Michigan Finance Authority bonds are secured by the District’s future state aid payments and received an “A+” rating by Standard & Poor’s.
JP Morgan served as the lead underwriter on the bond financing. Other team members included Siebert Brandford Shank and Loop Capital as underwriters, Lewis & Munday as bond counsel, Public Financial Management as the District’s financial advisor, and Miller Canfield as special counsel for the District.
“The entire team worked tremendously hard to enable the District to successfully restructure the 2005 debt at a very attractive interest rate of 2.94%. This transaction is a key part of the strategy to put DPS on the road to financial stability,” Roberts said. “As I have stated many times in the past, we are positioning DPS to not only take part in Detroit’s comeback, but in fact to LEAD it.”
The transaction is expected to close Thursday, May 17, 2012. The action takes place after a number of positive financial developments for the school district announced earlier by Roberts including:
- DPS generated its first annual operating surplus since 2002, reducing the deficit by over $43 million.
- In October of 2011, DPS completed a $200 million debt restructuring that further reduced the district’s legacy deficit to $83.9 million, down from $327 million when Roberts took office.
- DPS completed the relocation of offices from leased space in three different buildings spanning 3 city blocks to one main location and schools owned by the district.
- The district announced school consolidation and relocation decisions four months earlier than in prior years.