* Shruti Singh and Amanda Albright at Bloomberg…
Illinois, which has faced escalating penalties in the bond market as the coronavirus batters its finances, is poised to become the first state to borrow from the Federal Reserve’s $500 billion lifeline for local governments.
The state is planning to borrow $1.2 billion from the central bank for one-year to cope with revenue losses brought on by the economic shutdowns caused by the pandemic and the delay of its annual tax-filing deadline.
The step comes after Illinois last month canceled a planned auction of such short-term debt as the interest rates demanded by investors soared amid concern it could be the first state to have its bonds cut to junk. The Fed will charge an interest rate of 3.82%, more than a full percentage point less than it paid during a bond sale last month.
“The Federal Reserve Bank worked closely with our team to make this transaction possible through the Municipal Liquidity Facility, which is an important tool the state is using to answer the unprecedented economic challenges posed by the COVID-19 pandemic,” Alexis Sturm, director of the Governor’s Office of Management and Budget, said in the statement.
The bond is scheduled to be paid off a year from Friday. A bill passed last month allows the state to borrow another $5 billion, but that would likely be long-term.