(Reuters) - A bill aimed at reducing interest rate costs for an upcoming public sale of bonds Detroit initially issued in December to finance its exit from bankruptcy passed the Michigan House on Wednesday after winning approval from the state Senate last month.
Detroit, which exited the biggest-ever municipal bankruptcy on Dec. 10, privately placed $275 million of variable-rate bonds with Barclays (LONDON:BARC) Capital. As part of the city's U.S. Bankruptcy Court-approved plan, that debt is due to be sold in the U.S. municipal market in a fixed-rate mode by May 9. The deal will mark the city's first post-bankruptcy public bond sale.
The bill, which will return to the Senate to be enrolled before heading to Governor Rick Snyder to be signed into law, would boost security for the bonds by placing a specific statutory lien on Detroit income tax revenue pledged to pay off the debt. The move is expected to result in investment grade ratings for the bonds, which in turn would save Detroit $2 million to $3 million in annual interest costs, according to a Michigan House Fiscal Agency analysis of the bill.
Proceeds from the bonds were earmarked for retiring a prior $120 million Barclays loan to the city, to pay certain creditor claims from the bankruptcy and to finance city improvements.