June 25, 2014 at 6:09 pm

State sells $185M in bonds for new Detroit streetlights

Clint Williamson, 49, a lineman for the Energy Group a subcontractor for the City of Detroit, installednew street lights on Jefferson near Belle Isle. (Clarence Tabb Jr / The Detroit News)

The state successfully sold $185 million in new bonds Wednesday to help pay for 55,000 new streetlights in Detroit.

The 30-year bonds carry an overall interest rate of 4.53 percent, according to a statement from the Department of the Treasury. The bonds were rated as investment grade by the major credit agencies, ranging from “A-minus” from Standard and Poor’s and “BBB-plus” from Fitch.

The interest rate — which is just slightly more than the current average rate on a 30-year home mortgage — is a good one for the cash-strapped city, noted Matt Fabian, managing director of Municipal Market Advisors, an independent bond research firm.

“In this market all the rates are too low,” Fabian said. “The municipal bond market is extremely anxious to lend money, and there are about 10 lenders for every borrower.” He added that the assurances in the bonds insulated them from being challenged or discounted in bankruptcy. “It’s a reasonable risk for investors.”

Detroit hasn’t had a debt rating that high on its bonds in 15-years, according to Bloomberg News. The improved rating is partly because the bonds were issued by the Michigan Finance Authority to benefit the Public Lighting Authority of Detroit, an independent body created by the state to improve the city’s woeful public lighting. The authority is authorized to issue bonds to finance capital costs for system upgrades and earmark $12.5 million per year from the city’s utility user tax to finance the bonds.

The bonds will be repaid from utility taxes that will go directly to a trustee and not to the city, Bloomberg noted.

The city is slated to exit the electricity business by migrating customers to DTE over a seven-year period beginning in fiscal year 2015.

The bond sales comes as the city is still wrangling with bond investors and municipal bond insurers in its landmark city bankruptcy. The city has cut the payout on some bonds to 74 percent of their value, and is looking to completely invalidate more than $1 billion in notes tied to casino tax revenue. Bond insurers who will have to pay the shortfall have complained that the city is bargaining in bad faith, favoring its retired workers over creditors, and refusing to sell assets that could be used to pay off bondholders, including the holdings of the Detroit Institute of Arts.

The state-created authority is authorized to issue bonds to finance capital costs for system upgrades and earmark $12.5 million per year from the city’s utility user tax to finance the bonds.

The city is slated to exit the electricity business by migrating customers to DTE over a seven-year period beginning in fiscal year 2015.

The bonds sold Wednesday will pay for 55,000 new street lights, and also refinance $60 million in interim financing that allowed for the construction of 9,000 street lights.

“Every week we are adding 500 state of the art, LED lights throughout the city,” Odis Jones, chief executive officer of the authority, said in a statement. “The new system will be far more reliable and energy efficient than what was here before.”

boconnor@detroitnews.com