The city of Detroit on Wednesday hailed its first post-bankruptcy competitive issuance of $46.3 million in bonds “a huge success” after attracting 13 bidders with the debt going to Wells Fargo Bank, National Association.
The sale of the unlimited tax general obligation bonds builds off the recovering financial reputation of Detroit 11 years after the city filed the biggest municipal bankruptcy in U.S. history on July 18, 2013. Credit rating agencies Standard and Poor’s and Moody’s returned Detroit to an investment-grade evaluation this spring. Because of the improvement, the deal priced more than 1 percentage point tighter on the 10-year bonds compared to the city’s issuance of UTGO bonds in 2023. The city expects that will save it more than $4 million in debt service.
The new voter-approved UTGO bonds support funding of $22 million for public lighting, $11.6 million for transportation, $9 million for recreation and $3.7 million for public safety and economic development. The lower cost to issue the debt supports Mayor Mike Duggan’s goal to lower the city’s debt millage to 7 mills from 8 mills this year with an additional reduction in 2025 to 6 mills.
“This achievement highlights our commitment to fiscal responsibility and prudent financial management; seeking ways to benefit Detroit residents at the lowest possible cost,” Jay Rising, Detroit’s chief financial officer, said in a statement. “The proceeds from this issuance will be instrumental in advancing key infrastructure projects and supporting essential services that enhance the quality of life for our residents. We are grateful for the confidence shown by investors, reflecting our continued progress and positive economic trajectory.”
The issuance was the first post-bankruptcy deal that used a competitive sale method. That refers to when bidders compete by submitting the lowest true interest cost bid. The bidder that did this round was Wells Fargo Bank, National Association, which is a bank part of Wells Fargo & Co.
Lower credit spreads on the transaction mean a better deal for the city and lower interest rates. The credit spreads ranged from 36-76 basis points and were 70 bps on the 10-year maturity. By comparison, the 2023 transaction had spreads of 138 to 178 bps with a spread of 178 bps on the 10-year. A strong market in 2021 gave the city its previously lowest credit spreads, but the 10-year was 55 bps higher than the current sale at 125 bps.
In March, Moody’s awarded the city a double-notch upgrade to Baa2 from Ba1, a rating that had been granted a year prior. The investment-grade level issued in the spring was a 10-grade increase from Detroit’s Caa3 rating — a poor standing with very high credit risk — in June 2013. S&P followed with its own two-spot increase in April to BBB from BB+. The city hadn’t been investment-grade since 2009.
bnoble@detroitnews.com
@BreanaCNoble