Michigan State Building Authority
Multi-year financing strategy funds capital projects and provides debt service savings
The Michigan State Building Authority (SBA) finances capital projects for state agencies and public higher education institutions throughout Michigan through lease-backed revenue bonds. As a long-time municipal advisor to the SBA, Baird has worked with the Authority and financing team over many years to support its capital financing program and long-term debt management objectives.
The SBA’s multi-year financing strategy revolved around reducing annual debt service and creating budgetary flexibility. As a lease-backed credit, the SBA receives annual appropriations from the State of Michigan in the form of lease payments, which are used to pay debt service on its outstanding bonds. For several years, the state had identified three leases for state facilities it hoped to eliminate by 2026. Achieving this objective required a coordinated multi-year financing approach that leveraged strategic refinancing opportunities to reduce annual debt service while continuing to fund on-going capital projects.
Rather than relying on a single financing transaction, the SBA's debt portfolio was evaluated over multiple years to identify opportunities as market conditions evolved. Between 2024 and 2026, the SBA had approximately $1.26 billion of potential refunding candidates while also financing approximately $166.3 million of new capital projects. As refinancing opportunities emerged, the financing plan balanced new-money financings with long-term debt management objectives while adapting to changing market conditions.
The plan was executed through four financings totaling approximately $1.29 billion. Adding further complexity and opportunity, market conditions created the ability for the SBA to repurchase certain outstanding bonds at a discount through a tender offer. The financing structure combined the additional lease revenues generated from new capital projects with debt service savings from refunding the SBA's Series 2015I and 2016I bond issues and tendering a portion of the Series 2020-II bonds, resulting in cash flow savings.
The multi-year effort concluded with the SBA's $357.02 million 2026 Revenue and Revenue Refunding Bonds, Series I. Bond proceeds permanently financed projects at Delta College and the University of Michigan-Ann Arbor, refunded a portion of the Authority's outstanding commercial paper and refunded portions of the Authority's outstanding 2016 Revenue and Revenue Refunding Bonds.
The coordinated financing program supported the SBA to eliminate the State's targeted lease payments, generate meaningful debt service savings and enhance budgetary flexibility while continuing to support its long-term capital needs and objectives.
