Michigan’s Genesee County postponed a $54.2 million bond offer planned for today, a sign that issuers in the state are being penalized two weeks after Detroit filed the nation’s biggest municipal bankruptcy.
The sale would have been the biggest in Michigan since Emergency Manager Kevyn Orr sought court protection for the state’s most-populous city on July 18, data compiled by Bloomberg show. Genesee’s water-revenue securities were also backed by the county’s limited-tax general-obligation pledge. Standard & Poor’s rates the debt A+, its fifth-highest grade.
“You’re seeing credits associated with Michigan in general having a tough time and spreads widening out in sympathy,” said Dexter Torres, head trader in New York at Samson Capital Advisors, which oversees about $7 billion of munis.
Genesee, about 70 miles (113 kilometers) north of Detroit, is home to Flint, a city of about 101,000 that is also under a state-appointed emergency manager. Investors in the $3.7 trillion municipal market have speculated Detroit’s treatment of its general-obligation debt could set a precedent for other distressed cities in Michigan. Orr’s June plan to avoid bankruptcy proposed imposing losses on holders of some Detroit general obligations.
Michigan’s own bonds have also been penalized. The extra yield investors demand to own 10-year general obligations rather than benchmark munis rose yesterday to 0.43 percentage point, the most since July 12, Bloomberg data show.
Terry Stanton, spokesman for Michigan Treasurer Andy Dillon, didn’t immediately return a voicemail seeking comment.
Jane Ridley, S&P’s primary Detroit analyst, said in an online presentation today that the company could change its ratings on general obligations throughout Michigan depending on how the bankruptcy judge treats Detroit’s debt.
Keith Francis, controller for Genesee County, and Deb Cherry, its treasurer, didn’t immediately return e-mails and phone messages seeking comment. Paul Stauder at Stauder, Barch & Associates, financial adviser for the deal, didn’t immediately respond to a phone message.
Justin Perras, a spokesman for New York-based JPMorgan Chase & Co., the lead underwriter, declined to comment.
Saginaw County, north of Detroit, plans to sell $61 million of general obligations on Aug. 8. The deal will help the county of about 200,000 pay off unfunded pension liabilities, which total about $60 million. The bonds have an Aa3 rating from Moody’s Investors Service, the fourth-highest level.
Following Genesee’s postponement, Robert Belleman, Saginaw County’s controller, didn’t immediately return e-mails and phone messages seeking comment on Saginaw’s plans.
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