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Illinois sells $1.5 billion in bonds

Illinois sells $1.5 billion in bonds (Courtesy of MGN Online)

Tuesday the State sold $1.5 billion in general obligation bonds to pay down a portion of Illinois’ roughly $15 billion backlog of unpaid bills. Proceeds from today’s bond sale, together with funds from the planned sale of $4.5 billion Series 2017D general obligation bonds next week, will be used to help cut the State’s backlog approximately in half by June 2018.

The State has been accruing late payment interest of 9 percent to 12 percent on a portion of its backlog obligations. Today’s bond issue has an all-in borrowing cost of 3.5 percent, cutting those costs by more than half.

The $1.5 billion in general obligation bonds issued today were sold competitively in three separate bids, each with a par amount of $500 million. The Series 2017A bonds mature in 2018, the Series 2017B bonds mature in 2019 and the Series 2017C bonds mature in 2029. The bonds are being issued as fully tax-exempt and are rated “BBB” by Fitch Ratings, “Baa3” by Moody’s Investors Service, and “BBB-” by S&P Global. The three series received nine bids. The spread on the 2029 maturity was 165 basis points over AAA November Municipal Market Data (MMD).

  • $500 million of general obligation bonds, series of November 2017A were awarded to Bank of America Merrill Lynch with a true interest cost of 1.67 percent for the one-year maturity.
  • $500 million of general obligation bonds, series of November 2017B were awarded to J.P. Morgan Securities LLC with a true interest cost of 1.75 percent for the two-year maturity.
  • $500 million of general obligation bonds, Series of November 2017C were awarded to Bank of America Merrill Lynch with a true interest cost of 3.95 percent for the 12-year maturity.

Chapman and Cutler LLP and Burke, Burns LLP are acting as co-bond counsel for the State. Chapman and Cutler is the State’s disclosure counsel. The State’s financial advisers for the transaction are PFM Financial Advisors, LLC and Public Resources Advisory Group (PRAG).

“The state received strong bids today for its bonds and is pleased with the market’s favorable reception of the sale,” said Scott Harry, director of the Governor’s Office of Management and Budget. “This bodes well for the state’s financing coming next week.”

Following the completion of next week’s $4.5 billion bonds to complete the backlog refinancing, the State will return to the capital markets later this year with a $750 million general obligation bond issue for 2018 capital projects, which will also be sold competitively.

Illinois Comptroller Susana Mendoza released this statement in response,

The 3.5 percent rate the state of Illinois received on its competitive bond offering Tuesday will serve state taxpayers much better than the interest rates of up to 12 percent the state pays on parts of its bill backlog now. Once the negotiated sale is complete, my office will leverage federal matching funds to get taxpayers a good return on their investment and we will move swiftly to pay down the highest-interest-accruing parts of the state’s debt.

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