DPS receives “A+” credit rating, a key element of district’s financial turnaround plan

DETROIT, MI - Detroit Public Schools Emergency Manager Roy S. Roberts today announced the successful completion of a $244.9 million financing which results in effectively eliminating approximately $200 million of the school district’s legacy deficit. The district took advantage of the most favorable municipal market interest rate conditions in over three decades.

By refinancing the short term notes into long term obligations the District now has the ability to retain a larger amount of each month’s state aid revenues to strengthen its cash flow. DPS will be addressing the financial and budgetary measures necessary to stabilize and enhance its financial condition to eliminate the remaining deficit.

This week’s financing amends and restates the District’s short term March 2011 State Aid Notes into a ten year financing. The March Notes which were scheduled to mature in early 2012 and carried interest rates of 6.45% to 6.65%, were re-issued with a ten year repayment term at an overall interest cost to the District of approximately 4.7%. Stated another way, the District reduced its cost of borrowing by almost 200 basis points (2%) and extended its final maturity from less than one year to ten years. Given the steepness of the current municipal yield curve this type of restructuring is without precedent, according to the underwriter.

The financing was completed through the Michigan Finance Authority. The Michigan Finance Authority bonds are secured by the District’s future state aid payments, and received an “A+” rating by Standard & Poor’s. Siebert Branford Shank & Co. LLC served as the lead underwriter on the bond financing. Other team members included JPMorgan, Detroit-based Lewis & Munday as counsel to the district, and Public Financial Management Inc. as the District’s financial advisor.

“The entire team worked tremendously hard to enable the District to successfully refinance its short-term obligations at a very attractive and competitive overall interest rate of 4.7 percent. This transaction is a significant part of the strategy to put DPS on the road to stable fiscal health,” Roberts said. “As I have stated many times recently, we are positioning DPS to not only take part in Detroit’s comeback, but in fact to LEAD it.”

The transaction is expected to close October 13.

“We are pleased the Michigan Finance Authority was able to assist with the transaction. I believe results of the sale, in part, demonstrate investor confidence in Roy Roberts and his plan to return DPS to solid footing both financially and academically,” said State Treasurer Andy Dillon. “The net interest rate on the bonds, of less than 4.7 percent, provides significant savings and will be of great benefit to Detroit Public Schools.”