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Michigan Finance Authority Issues $3.3 Billion in Unemployment Insurance Bonds

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December 28, 2011

Issuance Reimburses MI General Fund, Restores Solvency to Unemployment Insurance Trust Fund, Saves MI Employers Millions in Related Costs

State Treasurer Andy Dillon and Department of Licensing and Regulatory Affairs (LARA) Director Steven Hilfinger today announced the repayment of Michigan’s $3.2 billion Unemployment Trust Fund balance to the U.S. Treasury. The repayment to the federal government was made possible through this week’s sale of variable rate demand bonds by the Michigan Finance Authority.

“This bond transaction marks the Department of Treasury’s and Michigan Finance Authority’s largest bond deal ever,” said State Treasurer Dillon. “Refinancing the State’s unemployment insurance debt was made possible by the timely action of the legislature along with Governor Snyder’s complete support, and is the result of a real team effort. We can all be proud of such a significant transaction; one that provides a win-win for the state and its business and employer communities.”

“This is an important transaction that allows us to eliminate the substantial federal debt that has been a burden on the unemployment trust fund,” said LARA Director Steven Hilfinger. “Restoring solvency to that fund is a major win for the employers and employees of Michigan.”

Because the transaction was completed before year end 2011, the State and its business community will experience significant interest savings, FUTA tax credits will be restored, future tax penalties will be avoided and the solvency tax on Michigan employers will be eliminated.

This week’s transaction is the end result of a tight timeline, with legislation approving the bond issue passed as recently as December 15, 2011 and signed into law by Governor Snyder just four days later. With transaction documents being negotiated between the MFA and financial partners within one week, the bonds were able to be priced on Tuesday, December 27 and sold today. Proceeds were delivered to the state which, in turn, repaid Federal Title XII Loans, in full.

The UI bonds sold at a historically low interest rate of 0.24 percent and will be converted to 10-year bonds in early 2012. In addition to paying back the federal government for unemployment funds borrowed over several years, bond proceeds will allow the UIA to reimburse the state’s general fund for interest paid on the federal loans. By repaying the Federal Government by the end of the year, the state is estimated to save between $150 and $200 million in interest costs, which would have been borne by Michigan employers.

The bonds, being issued as Variable Rate Demand Bonds, are being underwritten by Citigroup Global Markets Inc., and supported by a letter of credit issued by Citibank, N.A. The bonds are not a debt of the State of Michigan but will be repaid by an Obligation Assessment levied on Michigan’s employers. Maturity of the bonds is July 1, 2014 though the state expects to refund the bonds, with longer-term bonds, in the first part of 2012.

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