DALLAS -- Allen Park, Michigan is readying a conversion of $16.7 million of debt from a short-term to a long-term structure in a move designed help it climb back toward investment-grade territory.
The bonds were issued in a short-term structure to fund a tender to acquire bonds the city issued for a failed film studio.
The failure of the studio project left the city on the hook for the debt and ultimately landed Allen Park in a state emergency management and resulted in Securities and Exchange Commission fraud charges against the city and former city officials.
The Detroit suburb will remarket its 2015 Local Government Loan Program revenue bonds that were issued through the Michigan Finance Authority. The bonds carry a backing of the city's share of state distributable aid.
The original 2015 obligation was structured as a direct bank loan with Bank of America Merrill Lynch. The bonds were structured in a variable-rate mode with a Sept. 1, 2016 mandatory tender. The bonds are being remarketed in a fixed-rate mode on June 21 through the authority.
S&P Global Ratings assigned an A-minus rating to the bonds. The outlook is stable.
In March, S&P revised the outlook to positive on the city's general obligation bonds that remain deep in junk territory. The city's limited-tax GOs are rated at CCC-plus and its unlimited-tax GOs at B-minus. S&P said that a successful remarketing of the 2015B debt would improve the city's capacity to support its debt service.
"The general creditworthiness of Allen Park is influenced partially by the view of debt quality, impacted in part by their ability to restructure and remarket the 2015 B bonds, " said Misty Newland an S&P analyst. "Pending that sale of the transaction we will then reassess the GO rating of the city."
The 2015B bonds are tied to the tender offer on $31 million of bonds Allen Park sold in 2009 and 2010 to finance a $146 million film studio at a time when Michigan had the country's most generous film tax-credit program.
Plans for the eight-stage studio soon fizzled after the state government reined in the credits. With no one leasing the vast facility, the city was forced to dip repeatedly into its general fund to cover the $2.6 million annual debt service on the project.
By 2012, the state of Michigan declared the city to be in a financial emergency. In November 2014, the Securities and Exchange Commission charged the city and two former leaders with fraud related to the debt, taking the rare move of charging the public officials as "control persons."
Allen Park launched the tender in the summer of 2015. Holders of $11.2 million, representing 42% of the bonds, accepted. On Oct. 26, the city entered into purchase agreements with bondholders to sell another $5.2 million at the offered prices and under the same terms and conditions.
The tender was successfully completed at a price above par in November through a borrowing completed by the MFA.
