State of Michigan, Series 2011

State of Michigan
State Trunk Line Fund Bonds, Series 2011

State of Michigan Department of Transportation (“MDOT”) were issued to fund various highway and bridge projects including the Blue Water Bridge.

As senior manager, Siebert Brandford Shank evaluated the cost-effectiveness of multiple structuring alternatives, including the use of level debt and wrap-around debt structures. We worked closely with MDOT and its financial advisor to determine the impact of various bond structures on forecasted debt service coverage levels. Ultimately, the bonds were structured on a level debt service basis from 2013 to 2036 to take advantage of the low interest rate environment. We also provided routine updates on interest rate levels given high volatility in the fixed-income markets.

As the transaction was to price on an accelerated timeframe (4 weeks between kick-off and pricing), we worked closely with MDOT’s team to ensure very timely release of the POS, to provide investors plenty of opportunity to familiarize themselves with the credit in advance of pricing.

We also worked diligently with MDOT to develop a comprehensive internet-based investor presentation to target institutional buyers, focusing on MDOT’s strong financial and operating history, commitment to regulatory compliance and an extensive overview of security for the new bonds. Our firm began pre-marketing the bonds to investors a full week in advance of the sale.

Given the limited amount of debt being issued for the Series 2011 Bonds, Siebert Brandford Shank, MDOT and its financial advisor decided the most efficient structure would be to provide retail priority for certain maturities during the institutional pricing in lieu of a retail order period.

Aggressive marketing during the institutional order period generated strong demand, allowing us to lower yields on the bonds by as much as 12 basis points following the initial order period. As a result of these yield reductions, MDOT’s bonds priced at extremely tight spreads to MMD—spreads ranging from 8 to 48 basis points across the yield curve. The transaction resulted in an All-in TIC of 3.856% and achieved an arbitrage yield of 3.327%.