* Wednesday…

Illinois’s next big bond deal sounds like a municipal-market oxymoron: the worst-rated state in the nation is offering more than half a billion dollars of AAA debt.

The $573 million of securities the state plans to sell Thursday are secured by a stream of sales-tax revenue that’s diverted to investors, earning the deal the highest ranking from S&P Global Ratings. That’s seven steps above the state’s general-obligation debt, which is backed only by the government’s guaranty to pay what it owes.

“We expect the state of Illinois’s sales-tax bonds to fare better than the state of Illinois’s GO bonds, primarily due to the substantial support from the designated sales tax,” said Richard Ciccarone, the Chicago-based president of Merritt Research Services LLC, which analyzes municipal finances. “However, they will suffer. It will extract a higher borrowing penalty than would normally be expected for such a high-rated bond issue because of the chronic financial pressures.”

The sale went better than expected, but the cost was still higher than other states with AAA ratings.

* Today…

Illinois sold nearly $549 million of revenue bonds in competitive bidding on Thursday, dodging a steep market penalty the financially struggling state has paid for its general obligation bonds.

The Build Illinois bonds, backed by the state’s sale tax revenue, have high-quality credit ratings of AAA from Standard & Poor’s and AA-plus from Fitch Ratings versus Illinois’ low-investment-grade GO ratings, which are the weakest among the 50 states.

Illinois has a huge $111 billion unfunded pension liability and a chronic budget deficit. It was the only state without a complete fiscal 2016 budget due to a political impasse.

Bank of America Merrill Lynch won the biggest chunk of the bond issue - nearly $187 million of tax-exempt refunding bonds.

The pricing resulted in a spread over Municipal Market Data’s benchmark triple-A yield scale for 10-year bonds of 48 basis points, about 20 basis points narrower than the state’s last tax-exempt Build Illinois bond sale in June 2013.

The spread was also almost 3.5 times narrower than Illinois’ 166 basis-point spread over the scale for 10-year GO bonds.

…Adding… From the governor’s office…

Hi there –
Wanted to send you this statement for bond sale post.

STATEMENT: We were pleased with strong interest from the public finance community that enabled the State to borrow at historically low interest rates – and by cutting interest rates in half on some of our outstanding Build Illinois bonds, we will provide taxpayers $56 million in savings without extending debt service payments.

Thanks!
ck