CHICAGO, June 19 (Reuters) - The first public offering of debt to repair Detroit’s dilapidated public lighting system will hit the U.S. municipal bond market next week.
Citigroup will price $185.7 million of revenue bonds for Detroit’s Public Lighting Authority on Wednesday, according to a spokesman for Michigan’s Treasury Department. The bonds, which will be issued through the Michigan Finance Authority, are secured by a first lien on Detroit’s 5 percent tax on electric, gas and local telephone utility services.
Despite Detroit’s ongoing historic bankruptcy case and defaults on certain outstanding debt, the lighting authority bonds earned investment grade ratings of A-minus from Standard & Poor’s Ratings Services and BBB-plus from Fitch Ratings.
The credit rating agencies said the tax revenue earmarked for bond payments will not become embroiled in the city’s bankruptcy case under a federal court order.
Some of the proceeds from the deal will be used to take out $60 million of floating rate bonds the city privately placed with Citibank in December to jump start improvements to the system, in which an estimated 40 percent of street lights did not work. That deal marked the initial debt issuance by the authority, which was created by the Michigan Legislature in 2012.
The upcoming debt sale consists of $91.9 million of serial bonds due in 2015 through 2034 and $40.9 million of term bonds due in 2039 and $52.87 million due in 2044, according to the preliminary official statement.
The deal will be part of an estimated $10.7 billion in new bond and note issuances next week, according to Thomson Reuters estimates on Friday.
Negotiated sales are expected to total more than $6.75 billion, with competitive offerings reaching $3.95 billion.
Other highlights next week include nearly $1.2 billion from the state of Washington in four series of general obligation bonds. The Dormitory Authority of the State of New York will issue over $1 billion in three series of state personal income tax revenue bonds. And the city of Los Angeles is slated to sell $1.36 billion in tax and revenue anticipation notes. (Reporting By Karen Pierog and Robin Respaut; Editing by Leslie Adler)