Detroit sale of $135M in bonds to fund dozens of projects
Detroit — The $135 million in general obligation bonds sold by the city of Detroit will pay for dozens of projects, ranging from new bulletproof vests for police and roof repairs at the Charles H. Wright Museum of African American History, to upgrades at parks and buying property for future economic development.
Some of the projects date back to 2004, city officials said.
For the first time in more than 20 years, Detroit sold municipal bonds backed solely on the city's ability to repay, and Wall Street investors reacted better than expected Tuesday.
About 30 institutional investors bought the bonds Tuesday and the city sold $25 million more than expected, said John Hill, chief financial officer for the city. That was due to securing lower interest rates than anticipated, Hill said. The city secured a 4.8 percent interest rate.
"We thought the interest rate would be much higher because of the city's overall credit rating," Hill said Wednesday. The city currently has a Ba3 credit rating, which is still considered non-investment grade speculative.
Detroit had good timing in its offering because there is currently a low supply and strong demand for municipal bonds, several market analysts said. “It’s a perfect recipe to come to market,” said Kathleen McNamara, senior municipal bond strategist at UBS Wealth Management, in a Bloomberg interview Tuesday with Bloomberg News. “They should be very, very happy.”
The bonds were priced with yields ranging from 3.36 percent on a 2020 maturity to 4.95 percent on those due in 2038.
For at least 20 years, Detroit's credit rating was so bad it could sell only bonds that were either backed by the state of Michigan or with insurance to the bondholder, which greatly added to the cost for the city.
Still, the sale also was another strong sign that investors are taking notice of Detroit's financial recovery, Hill said: "This is a very good sign about the city's financial stability."
Tuesday's was the first round of two planned sales of municipal bonds. Earlier this year, City Council authorized the sale of $255 million in tax-exempt municipal bonds over the next five years.