Flint, Michigan
Michigan Strategic Fund Approves Up to $700M Bond Issuance to Pay for Flint Water Crisis Settlement
Tue 05/04/2021 10:43 AM
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Relevant Documents:
Press Release
MSF Board Meeting Packet
Preliminary Approval Court Order
Last week, the Michigan Strategic Fund, or MSF, board approved the authorization of up to $700 million in private activity bond financing as part of the “Flint Water Crisis,” or FWC, settlement agreement between state parties and plaintiffs’ legal counsel that received preliminary court approval earlier this year, officials announced in a press release. The negotiated settlement, and subsequent bipartisan legislation, charged the MSF with executing a 30-year bond transaction to finance the settlement, according to the release. To read more of our Americas Municipals' coverage of the Michigan Strategic Fund bond issuance as well as our coverage of other timely, objective and actionable intelligence covering higher yielding and liquid municipal issuers request a trial here.
The state initially announced a $600 million settlement in August 2020, but additional defendants joined the settlement, pushing its total to $641.25 million. The defendants include: the city of Flint, which is providing $20 million through its insurer; McLaren Regional Medical Center, which is contributing $20 million; and Rowe Professional Services Co., which is contributing $1.25 million, according to the MSF release.
In a Jan. 21 opinion and order, Judge Judith E. Levy for the U.S. District Court for the Eastern District of Michigan granted the plaintiffs’ motion to establish settlement claims procedures and allocation along with preliminary approval of class settlement components. The order also granted the plaintiffs’ motion for an order adopting the proposed motion for approval of wrongful death settlement. The order notes, however, that the settlement is only partial and does not resolve all of the lawsuits related to the FWC, with the first round of bellwether trials against the nonsettling defendants set to commence on June 4.
A footnote identifies the following defendants who have not joined the settlement: Veolia Water North America Operating Services LLC; Veolia North America LLC; Veolia North America Inc.; Veolia Environment SA; Lockwood Andrews & Newnam PC; Lockwood Andrews & Newnam Inc.; Leo A. Daly Co.; the United States of America; and the U.S. Environmental Protection Agency and their affiliates.
The order states that plaintiffs are “thousands of children, adults, property owners, and business owners who allege they were exposed to lead, legionella, and other contaminants from the City of Flint’s municipal water supply” after the city switched its supply to the Flint River. In their lawsuits, individual plaintiffs and putative class members allege that defendants “caused, prolonged, concealed, ignored, or downplayed the risks of Plaintiffs’ exposure to the City’s water, which injured Plaintiffs and damaged their property and commercial interests,” the order states.
The newly created Flint Advocacy Fund, or FAF, which is serving the role of the “special purpose entity” pursuant to the terms of the Jan. 21 amended master settlement agreement approved by the district court, requested private activity financing of up to $700 million from the MSF. The FAF was created to receive the annual payments made by the state defendants and to facilitate the bond issue to enable making lump-settlement payments to the Flint water plaintiffs, according to a memo by MSF Capital Access Director Christopher Cook delivered to board members before the April 27 vote.
The memo says bonds may be sold in one or more series but specifies that an issuance will be executed through a negotiated public offering with an underwriting syndicate led by Citigroup Global Markets Inc. and Siebert Williams Shank & Co. LLC as the senior managing underwriters. The MSF may issue another series to be privately placed with a qualified investor buyer if it determines that additional issuances are necessary. The underwriters must also get bond ratings from at least two rating agencies and distribute a preliminary official statement describing the transaction and providing “adequate disclosure to potential investors,” according to the Cook memo.
The Cook memo also includes the following illustration of the basic structure of the MSF bonds.
The 30-year bond issue is expected to have level annual debt service and be sold in denominations of $5,000 (or any integral multiple thereof). The transaction’s marketing process for the bond issue is expected to take two to three weeks, and funding would occur about two weeks after the issue’s fixed interest rate and final amortization is determined, Cook added.
The resolution approved by the MSF board references a bond indenture between the FWF and U.S. Bank NA, as bond trustee, and states that as security for the payment of the bonds, “the Borrower will issue and deliver its Note and the Irrevocable Direction (as defined in the Indenture) to the Trustee.”
The resolution also indicates that state defendants in the case agreed to pay $600 million into the FWC settlement fund through an initial $5 million payment and then to make annual payments to the borrower in the amounts and on the dates stipulated by the agreement. The resolution stipulates that bond proceeds from the issuance are to be used to:
The state of Michigan will be responsible for the settlement payments of approximately $35 million a year for up to 30 years, an obligation that will be included as part of the state’s annual appropriations process, the MSF release states. The MSF is run by the Michigan Economic Development Corp., or MEDC, and the transaction carries no financial risk or financial exposure to either entity, according to the news release.
Relevant Documents:
Press Release
MSF Board Meeting Packet
Preliminary Approval Court Order
Last week, the Michigan Strategic Fund, or MSF, board approved the authorization of up to $700 million in private activity bond financing as part of the “Flint Water Crisis,” or FWC, settlement agreement between state parties and plaintiffs’ legal counsel that received preliminary court approval earlier this year, officials announced in a press release. The negotiated settlement, and subsequent bipartisan legislation, charged the MSF with executing a 30-year bond transaction to finance the settlement, according to the release. To read more of our Americas Municipals' coverage of the Michigan Strategic Fund bond issuance as well as our coverage of other timely, objective and actionable intelligence covering higher yielding and liquid municipal issuers request a trial here.
The state initially announced a $600 million settlement in August 2020, but additional defendants joined the settlement, pushing its total to $641.25 million. The defendants include: the city of Flint, which is providing $20 million through its insurer; McLaren Regional Medical Center, which is contributing $20 million; and Rowe Professional Services Co., which is contributing $1.25 million, according to the MSF release.
In a Jan. 21 opinion and order, Judge Judith E. Levy for the U.S. District Court for the Eastern District of Michigan granted the plaintiffs’ motion to establish settlement claims procedures and allocation along with preliminary approval of class settlement components. The order also granted the plaintiffs’ motion for an order adopting the proposed motion for approval of wrongful death settlement. The order notes, however, that the settlement is only partial and does not resolve all of the lawsuits related to the FWC, with the first round of bellwether trials against the nonsettling defendants set to commence on June 4.
A footnote identifies the following defendants who have not joined the settlement: Veolia Water North America Operating Services LLC; Veolia North America LLC; Veolia North America Inc.; Veolia Environment SA; Lockwood Andrews & Newnam PC; Lockwood Andrews & Newnam Inc.; Leo A. Daly Co.; the United States of America; and the U.S. Environmental Protection Agency and their affiliates.
The order states that plaintiffs are “thousands of children, adults, property owners, and business owners who allege they were exposed to lead, legionella, and other contaminants from the City of Flint’s municipal water supply” after the city switched its supply to the Flint River. In their lawsuits, individual plaintiffs and putative class members allege that defendants “caused, prolonged, concealed, ignored, or downplayed the risks of Plaintiffs’ exposure to the City’s water, which injured Plaintiffs and damaged their property and commercial interests,” the order states.
The newly created Flint Advocacy Fund, or FAF, which is serving the role of the “special purpose entity” pursuant to the terms of the Jan. 21 amended master settlement agreement approved by the district court, requested private activity financing of up to $700 million from the MSF. The FAF was created to receive the annual payments made by the state defendants and to facilitate the bond issue to enable making lump-settlement payments to the Flint water plaintiffs, according to a memo by MSF Capital Access Director Christopher Cook delivered to board members before the April 27 vote.
The memo says bonds may be sold in one or more series but specifies that an issuance will be executed through a negotiated public offering with an underwriting syndicate led by Citigroup Global Markets Inc. and Siebert Williams Shank & Co. LLC as the senior managing underwriters. The MSF may issue another series to be privately placed with a qualified investor buyer if it determines that additional issuances are necessary. The underwriters must also get bond ratings from at least two rating agencies and distribute a preliminary official statement describing the transaction and providing “adequate disclosure to potential investors,” according to the Cook memo.
The Cook memo also includes the following illustration of the basic structure of the MSF bonds.
The 30-year bond issue is expected to have level annual debt service and be sold in denominations of $5,000 (or any integral multiple thereof). The transaction’s marketing process for the bond issue is expected to take two to three weeks, and funding would occur about two weeks after the issue’s fixed interest rate and final amortization is determined, Cook added.
The resolution approved by the MSF board references a bond indenture between the FWF and U.S. Bank NA, as bond trustee, and states that as security for the payment of the bonds, “the Borrower will issue and deliver its Note and the Irrevocable Direction (as defined in the Indenture) to the Trustee.”
The resolution also indicates that state defendants in the case agreed to pay $600 million into the FWC settlement fund through an initial $5 million payment and then to make annual payments to the borrower in the amounts and on the dates stipulated by the agreement. The resolution stipulates that bond proceeds from the issuance are to be used to:
- Reimburse state defendants for the $5 million initial payment into the FWC settlement fund;
- Make a $595 million payment into the FWC settlement fund;
- Fund, if necessary, capitalized interest on or a reserve fund for the bonds; and
- Pay costs related to the issuance of the bonds.
The state of Michigan will be responsible for the settlement payments of approximately $35 million a year for up to 30 years, an obligation that will be included as part of the state’s annual appropriations process, the MSF release states. The MSF is run by the Michigan Economic Development Corp., or MEDC, and the transaction carries no financial risk or financial exposure to either entity, according to the news release.
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