Standard & Poor’s Ratings Services (S&P), one of the nation’s largest credit rating agencies, has issued a solid investment grade credit rating of “A/stable” on $245 million worth of bonds to be offered to the public by Barclay’s.
These bonds are financial recovery bonds that were originally privately placed with Barclays Capital Inc. on December 10, 2014, as the city made it exit from Chapter 9 Bankruptcy.
The bonds are being used to finance a number of important projects in the city, including upgrading the Detroit Fire Department fleet and the city’s financial management infrastructure.
This is an exciting moment for the City of Detroit. S&P’s credit rating shows that the city is once again a solid bet for investors. It also reflects the work the city has put in to produce a secure financial management system.
“We finished 2014-2015 with Detroit’s first general fund operating surplus in more than a decade,” said Mayor Duggan. “With our partners on Detroit City Council, we’re on our way to our second straight balanced budget this year.”
Because of the positive rating, the city believes it will save $2.5 million annually and $20 million in interest costs over the life of the debt.
The passage of Public Act 17 of 2015 in the Michigan Legislature also helped bring down the interest rate.
Chief Financial Officer John Hill explains, “Under the Act, city income taxes (the primary source of payment for these financial recovery bonds) is subject to a statutory trust and lien to secure repayment of bond principal and interest. The action by the State of Michigan helped further lower the interest rate paid by Detroit taxpayers.”
The bill’s sponsors were Senator Darwin Booher, Representative Bradford Jacobsen, Senate Majority Leader Arlan Meekof, and House Speaker Kevin Cotter.
Additionally, S&P also issued a General Issuer Credit Rating of “B/stable.” This rating translates to a Limited Tax General Obligations Rating of “B-/stable”, which is a six-step increase from the previous rating of “D”.
This new rating occurred less than seven months after Detroit exited bankruptcy. The city has reduced the amount of bankruptcy exit financing by $30 million from initial projections by having its bankruptcy consultants lower their fees.