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Michigan school districts to test municipal bond market

August 12  (Reuters) – After three Michigan municipal bond sales were postponed in the wake of Detroit’s bankruptcy filing, two of the state’s school districts are testing the market with sales expected in the next two weeks.

The Michigan Finance Authority is planning to sell $92 million of state aid revenue notes for the School District of the city of Detroit during the week of Aug. 19, said a market source on Monday. JP Morgan is the lead manager on the sale.

The Ypsilanti School District, a 24.3 square-mile school district with a population of about 40,000 located 30 miles west of Detroit, is scheduled to issue $18 million in revenue bonds on Wednesday, a market source said. JP Morgan is also the lead manager on the sale.

The Ypsilanti district didn’t immediately respond to requests for comment.

But in the past two weeks, Saginaw County, Genesee County and the city of Battle Creek all said they were holding off on bond sales in the wake of the Detroit bankruptcy filing.

There have been no new bond sales from Michigan issuers on the U.S. municipal bond market for an amount greater than $7 million since Detroit filed the largest municipal bankruptcy in U.S. history on July 18.

Though the counties and Battle Creek were able to hold off on selling their bonds, the school districts may not have that luxury, according to a Moody’s Credit Outlook.

Many Michigan school districts borrow money each year in August to cover expenses and payroll for the upcoming school year. Most borrow through a state financing arm, but others go directly to private loans or bank letters of credit, Moody’s said.

“If market trends lead banks to withdraw credit support, those school districts could be faced with immediate cash flow pressures,” Moody’s said.

Detroit’s bankruptcy filing has caused tremors throughout the state because Kevyn Orr, the city’s state-appointed emergency manager, has said he’ll treat general obligation bond holders as unsecured creditors.

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