LINKEDINCOMMENTMORE

Detroit — Officials said the city took another step toward financial stability Friday by redeeming bonds that will cut future debt payments in fiscal year 2025 to an estimated $75 million annually, compared to the earlier estimated $107 million annually payment.

To reduce that looming “debt cliff,” the city sold $175.98 million in taxable Financial Recovery Bonds that were issued as part of the city’s Chapter 9 bankruptcy exit plan. Detroit is currently making interest-only payments on those bonds, with principal payments coming due beginning in fiscal year 2025. The interest on Friday’s bond deal was 5.09 percent, enabling the city to achieve a “net present-value savings” of approximately $10.08 million, city officials said. It also reduced gross debt service by nearly $155 million during the “debt cliff” period of fiscal years 2025-30.

The recovery bonds were issued to settle claims with creditors and two health-care funds for general city retirees and police and fire retirees. 

This is the second major bond deal by the city this week. On Tuesday, Detroit sold $135 million in general obligation bonds, marking for the first time in more than 20 years the city sold bonds based solely on its own ability to pay. Those bonds will be used to finance dozens of capital improvement projects including park upgrades, repairs to the Charles H. Wright Museum of African American History, as well as assembly of land for future economic redevelopment.

“This week shows that we are committed to responsible use of credit to help the city build for the future, while also reducing long-term debts that could undo the progress we’ve made,” Mayor Mike Duggan said in a statement.  “Eliminating this debt cliff removes another major roadblock for Detroit’s long-term recovery.”

Laguilar@detroitnews.com

Twitter: @LouisAguilar_DN

Read or Share this story: https://www.detroitnews.com/story/business/2018/12/07/bond-sales-eases-peril-detroit-debt-cliff/2243776002/