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A Momentous Week – Part 1 of 2: Detroit’s Market Return
December 14, 2018
The first week of December was significant in MuniLand. In this week’s blog, I’ll cover the City of Detroit’s re-entry into the muni market. Next week, I’ll share my perspective as one of the panelists at the SEC’s conference, “The Road Ahead: Municipal Securities Disclosure In An Evolving Market.” First, about Detroit.
A decade after bankruptcy, the City of Detroit has returned to the bond market. The City issued two different bonds last week, one through the Michigan Finance Authority to restructure some of its outstanding debt for budget relief purposes; the other was a new-money bond secured solely by the City of Detroit’s own credit strength. This was the first time Detroit utilized its own credit structure in almost twenty years.
Since the bankruptcy, Detroit underwent a near-complete overhaul. The City has new leadership and started to balance its budget. This enabled its exit from state oversight and generated surpluses for the first time. These efforts were recognized with rating upgrades by both Moody’s and Standard & Poor’s. Detroit’s credit trend is definitely upward.
A key part of their overhaul was also deliberate and direct engagement of the buy-side, as other top municipal issuers undertake. Detroit’s finance team saw the need to go beyond buttressing the City’s credit, and to also rebuild the City’s investor relations. In general, investor relations is still something most issuers don’t invest enough time and effort into prior to a bond sale. For Detroit, their investor outreach efforts were rewarded.
Working with BondLink, the City launched a new dedicated investor relations website www.CityofDetroitBonds.com in August 2017 – well before it planned to issue new bonds. They worked with their peers in the Michigan State Treasurer’s Office to host an investor conference held at the Detroit airport several months before the sale. And, leading up to last week’s bond sales, they worked with their advisor team at Hilltop and underwriting team at Goldman Sachs to complete a series of investor meetings and roadshows.
So how did Detroit do? The City sold bonds at or below 5%, plus strong demand that allowed the City to upsize its transactions. In short, their results were incredible given where they were coming from as an issuer. Congratulations to Detroit and their entire team. The City’s sales last week were prime examples of the bond market signaling to an issuer it is on the right path.