Illinois going back to bond markets
Tuesday, Jun 7, 2016 - Posted by Rich Miller
* Karen Pierog…
Illinois plans to sell $550 million of bonds on June 16, the governor’s office said on Monday, as the state struggles through an unprecedented budget impasse that has heightened concerns about its financial health.
The tax-exempt general obligation bond sale, which will be competitively bid, comes after state lawmakers ended their spring session on May 31 without passing budgets for the current and next fiscal years.
The deal’s prospectus, released late on Monday, acknowledged Illinois’ financial condition has been “materially adversely affected” by the impasse between Republican Governor Bruce Rauner and Democrats who control the legislature. […]
Credit rating agencies have warned Illinois, which has the lowest bond ratings among the 50 states, of further downgrades if it fails to tackle a $111 billion unfunded pension liability and huge structural budget deficit.
Illinois’ sold $480 million of bonds in January, the state’s first deal in nearly two years.
I doubt Mayor Emanuel will retaliate by bad-mouthing the bond sale like Rauner repeatedly has to the CPS sales. But, stranger things have happened, I suppose.
* Related…
* Illinois hires consultants to ease interest rate swap risk: Illinois has hired outside consultants at a two-year cost of $525,000 to reduce its exposure to bond-related agreements with banks that could cost the cash-strapped state more than $100 million… Further downgrades of Illinois’ relatively low general obligation credit ratings could force the state to pay termination fees to the banks estimated at $163 million, according to the state’s solicitation to prospective law firms. The trigger would be a two-notch downgrade of the state’s Baa1 rating with Moody’s Investors Service to Baa3 or a three-notch downgrade of its A-minus rating with Standard & Poor’s to BBB-minus. Both agencies have warned of future downgrades if Illinois’ big pension problem and structural budget deficit worsen.
* Still budget-less Illinois has U.S. muni market on edge: The state appears to be bracing for credit rating cuts. The governor’s budget office has hired consultants to help Illinois disentangle from interest rate swap agreements that could cost the state more than $100 million should its ratings fall below specified levels.
- sal-says - Tuesday, Jun 7, 16 @ 9:28 am:
Where is this $550M going?
- cdog - Tuesday, Jun 7, 16 @ 9:29 am:
So we are going to the bond market to get $550m at an obnoxious interest rate.
Then, if/when we take a two-step down grade we pay the banksters $163m. Unless, the $550k consultants can untangle the tangled state.
The net will possibly be $386.5m, but we will pay high interest on $550m.
That’s worse than a payday loan.
Rauner’s hedge fund friends win again.
- Rabid - Tuesday, Jun 7, 16 @ 9:30 am:
Nope it’s structural pension liability and unfunded budget deficit
- Hit or Miss - Tuesday, Jun 7, 16 @ 9:33 am:
===Illinois’ sold $480 million of bonds in January, the state’s first deal in nearly two years.===
The bonds sold in January had rates of up to 4.27% with a 5% coupon. This was about 160 basis point more than the AAA rated bond benchmark. With the impasse in Springfield I would expect the new bonds to be priced with an even higher yield. This is even more likely if one or more of the bond rating services gives Illinois yet another downgrade. All in all, the new bonds will be very expensive for Illinois tax payers.
- cdog - Tuesday, Jun 7, 16 @ 9:40 am:
Now that the bond offering is on the calendar, it will be interesting to see if any downgrades happen in the next 9 days.
That’s how Rauner likes it, bad news ahead of bond offerings.
- anon - Tuesday, Jun 7, 16 @ 9:43 am:
When the State suffered credit downgrades during the Quinn administration, Rauner said it was Quinn’s fault. Now Rauner wants us to believe he has no share in the blame for downgrades during his administration.
- Ghost - Tuesday, Jun 7, 16 @ 10:15 am:
gov get a lot of money himself, and his campaign as well from financial investors.
so he creates an atmosphere where State bonds have high interest rates and then issues them to his fellow investors.
no conflict here. its not like he fixed the budget problem beforemissueing bonds to lower the cost to the state.
- TinyDancer(FKA Sue) - Tuesday, Jun 7, 16 @ 10:52 am:
==Illinois hires consultants to ease interest rate swap risk.==
Banks + Rating Agencies = shakedown
Illinois should hire consultants to READ prospectus BEFORE entering into agreements/contracts with banks.
- Sir Reel - Tuesday, Jun 7, 16 @ 11:06 am:
Where’s the $525,000 for the consultants coming from?
Is there a number appropriation or not?
- Annonin' - Tuesday, Jun 7, 16 @ 11:16 am:
Speakin’ of consultants, don’t forget BigBrain pal Stu Levine is done with his federally financed trip to charm school in August. Some hear he will be the grand marshal of the Twilight Parade
- Tom K. - Tuesday, Jun 7, 16 @ 8:31 pm:
Since states can’t go bankrupt, why would the GO bonds of any state carry a higher or lower interest rate than any other state? The higher interest rate says that the Marketplace truly believes there is risk of default at the state level. But isn’t the risk of that so small as to not warrant the large current spread? Why the disconnect?