A Michigan state authority sold $116.7 million in notes to prevent cash flow shortfalls in the state’s school districts.
The Michigan Finance Authority sold the notes in two series. The Series 2023A-1 notes, consisting of $56.8 million, mature on July 22, 2024, and the Series 2023A-2 notes, consisting of $59.8 million, mature on August 20, 2024. Both series yield 3.45% and pay interest at 5%. The Series 2023A-1 notes received a rating of A-1+ from S&P Global Ratings, while the Series 2023A-2 notes received a rating of A-1 from the ratings agency.
The notes will finance the purchase of additional notes previously issued by the state’s school districts. “This will provide the Governmental Units with funds to meet their respective operating cash flow shortfalls anticipated to occur during fiscal year 2023-24,” according to the official statement accompanying the sale of the notes.
The bonds are considered state aid notes for their use in supporting locally managed school districts. Such programs can enhance the ratings of local school districts while ensuring that they retain enough money to operate, according to analysts at Fidelity Capital Markets. The authority “facilitates the process by pooling the loans, soliciting bids and obtaining the highest possible short-term rating, resulting in competitive interest rates and typically lower costs of borrowing,” according to the Michigan Finance Authority website.
The bonds are limited obligations of the authority, payable by revenue from the school district notes.
PNC Capital Markets LLC served as lead underwriter on the issuance, purchasing the bonds for $118.2 million. The price reflected a premium of more than $2 million.