Michigan Finance Authority 2012
State Agencies and Authorities
Michigan Finance Authority
On December 5, 2012 the MFA Series 2012 Unemployment Obligation Assessment Revenue Bond Deal was selected for the 2012 National Bond Buyer Deal of the Year award.
Early 2012 saw significant negative rating agency actions with respect to several major credit provider banks, including Citibank in its role as LOC provider on the MFA Series 2011 UI VRDBs. Early in March, MFA reassembled its financing team and began work on refinancing Series 2011 with a structure that would lock in historically low long-term interest rates, reduce exposure to the impact of any further deterioration in the LOC provider’s credit ratings, and reduce the probability of large increases in the annual Obligation Assessment (OA) imposed on Michigan’s participating employers across the life of the bond issue. This effort began with fresh cash flow analyses produced by FirstSouthwest and progressed to the examination of structural elements and concepts that might be effectively utilized to produce the optimum mix of scheduled non-callable and optionally callable debt at the lowest all-in cost to MFA. FirstSouthwest’s previous experience as FA on the Texas UI transactions combined with its highly customized cash flow model was critical in this analysis, allowing for very rapid comparative analyses of various combinations of structural components and pricing assumptions. The final structure produced through that iterative process resulted in a $1.462 billion fixed rate non-callable Series 2012A, a $1.2 billion fixed rate callable Series 2012B that offered investors an extremely high level of predictability with respect to call date, and a $250 million VRDB Series 2012C that would be called with the first available excess revenues above scheduled debt service.
Concurrently, FirstSouthwest utilized its experience with the Texas UI transaction to lead the ratings process with all three of the major rating agencies. Based on the concerns that had emerged in the rating process with the Texas issue, FirstSouthwest worked closely with the MFA, Treasury, Michigan UIA and underwriters to develop a ratings strategy that, combined with the final structure, would ultimately result in the transaction being the first, and currently still the only UI transaction to receive “AAA” ratings from Moody’s, S&P and Fitch.
Armed with three AAA ratings, a highly predictable amortization for the Series B callable bonds, and a long history of excellent UI tax collections rates, FirstSouthwest accompanied the MFA, Treasury and UI on a four day investor road show trip to Chicago, Boston, New York and Detroit to provide potential investors with an in-depth look at the security, credit, management expertise, and cash-flow-predictability features of this unique and precedent setting UI financing.
With the investor interest generated by the road show still fresh, FirstSouthwest suggested that the underwriters price the Series B callable bonds first, which was met by very heavy demand from investors seeking a little bit of additional yield with very low risk. The heavy over-subscription for those bonds allowed for a subsequent pricing of the non-callable Series A bonds at extremely aggressive interest rates for an all-in TIC of 1.80%.