* 12:58 pm - The governor’s budget office claims via press release that, despite the recent Moody’s downgrade, interest on the state’s bond sales are actually lower than recent issues…

The Governor’s Office of Management and Budget today is pleased to announce the State successfully has sold $525 million of tax exempt General Obligation Bonds and $275 million of taxable General Obligation Bonds. The bond sale provides funding for the Illinois Jobs Now! Capital plan, which was signed into law by Governor Quinn to help revive the state’s ailing economy by creating and retaining more than 439,000 jobs over six years.

“Positive feedback like we have seen today from investors demonstrates the strong confidence investors have in Illinois,” said David Vaught, Director of the Governor’s Office of Management and Budget. “These bond bids make clear that investors know we are taking steps to correct the decades of fiscal mismanagement in our state, and they understand we continue to take major steps to reform pensions and control skyrocketing Medicaid costs in an effort to return Illinois to sound financial footing.”

In a competitive sale, the $525 million tax exempt issuance priced with an interest rate of 3.9125 percent with Wells Fargo as the successful bidder. This is the lowest rate the State has received on a tax-exempt capital bond issuance in recent history. As a note of comparison, in November of 2011, the states triple A rated Build Illinois Bonds priced with an interest rate of 4.07 percent. The state received 8 bids overall.

The $275 million taxable issuance priced with an interest rate of 5.2992 percent with J.P. Morgan Securities LLC as the successful bidder. The state received 9 bids overall for this issuance. As a basis of comparison, the 2037 maturity has a 5.76 yield which is 277 basis points higher than a comparable U.S. Treasury rate. The most recent General Obligation capital bond issuance in July of 2010 priced similar bonds with a spread of 325 basis points above the comparable U.S. Treasury rate. This equates to a 48 basis point improvement. [Emphasis added]

Discuss.

…Adding… Treasurer Dan Rutherford’s prediction via press release last week apparently didn’t hold up…

“The downgrade will result in Illinois taxpayers paying an estimated additional $60 million to repay the issuance of next week’s scheduled $800 bond sale. In addition, this may impact Illinois institutional bond holders which may have to sell their current Illinois bond holdings because their investment policies require minimum bond ratings greater than our new rating.”

…Adding More… You also have to wonder if Bloomberg and the Tribune editorial board will run corrections…

The sorry result: when it sells these bonds, Illinois may face borrowing costs more than four times as high as the average it has paid over the last 10 years, according to Bloomberg.

Don’t bet on it.

*** UPDATE 1 *** The budget office says they looked at the history of Illinois’ long-term tax exempt capital bonds all the way back to 1984 (the earliest records they have) and didn’t find any at a lower rate than the 3.9 percent from today’s $525 million tax exempt issuance.

Wow.

Of course, interest rates are at historic lows, so that’s obviously helping here. And the rate would’ve been even lower if we were a AAA state. But the hand-wringing about this particular issuance appears to have been way, way off the mark. Let’s see if anybody admits it.

*** UPDATE 2 *** From Treasurer Rutherford…

“Illinois sold $800 million worth of bonds today for important projects such as new roads and schools. I am indeed pleased that we will pay a lower interest rate on these bonds than we did last year, but it’s important to keep these ‘savings’ in perspective.”

“Market conditions – such as the European crisis causing a flight to American quality – were favorable today, but the rates we received would have been considerably better without Moody’s lowering of Illinois’ credit last week. Tens of millions of extra dollars were still taken out of taxpayers’ pockets today because of the financial condition of Illinois as determined by Moody’s.”

“Moody’s downgrade reinforces my stance: Illinois needs to solve its unfunded public pension crisis and pay all outstanding bills without borrowing additional money.”

*** UPDATE 3 *** The budget office says they’ve found records dating back to 1976, and they still haven’t found a lower interest rate on a similar bond offering.

*** UPDATE 4 *** Bloomberg compares Illinois’ offering to other “top rated debt” and has a negative conclusion…

Illinois’s cost to borrow relative to top-rated issuers tripled from 2009 when it sold $800 million of bonds today, after its credit rating was cut by Moody’s Investors Service to the lowest among U.S. states.

The $525 million tax-exempt part of today’s sale included 10-year general-obligation bonds priced to yield 3.1 percent, according to data compiled by Bloomberg. That’s 110 basis points more than the 2 percent yield of top-rated 10-year debt.

A 10-year bond sold on Sept. 16, 2009, the last time Illinois took competitive bids for tax-exempt general obligations, was priced at 37 basis points above top-rated debt. A basis point is 0.01 percentage point.

*** UPDATE 5 *** Wall Street Journal…

Both Wells and J.P. Morgan reoffered bonds to investors at lower yields than where outstanding Illinois debt currently trades, reflecting how strong the sale was, market participants said.

Wells offered 10-year tax-exempt debt for Illinois with a coupon of 4% and a yield of 3.10%, for instance. That’s around 0.20 percentage point less in yield than where comparable outstanding Illinois debt traded late last year, said Michael Pietronico, chief executive officer of Miller Tabak Asset Management in New York. It’s also around 1.30 percentage point more in yield than what triple-A munis offer on Thomson Reuters Municipal Market Data’s benchmark scale.

“The flavor of the muni market so far in 2012 has been investors reaching for [higher-yielding] product to generate excess total return and income,” said Pietronico, whose firm manages about $625 million in muni assets. He said his firm would buy Illinois debt in the secondary trading market if it came at juicier yields than those offered in the deal Wednesday.

A relative dearth of new bonds in the muni market helped reception of Illinois’ sale, too, said portfolio managers. States, cities and other so-called municipalities have sold $1.6 billion of municipal debt so far this year, according to data provider Thomson Reuters. That’s less than one-third of the volume of a typical week in 2011.