CHICAGO — Cook County, Ill., will enter the market today with roughly $400 million of fixed-rate bonds in a transaction aimed at saving the county money by refunding a chunk of its outstanding debt and generating new money to finance the purchase of capital equipment.
The sale comes as county President Todd Stroger unveils his proposed fiscal 2010 budget tomorrow.
It is the first borrowing under a new chief financial officer who took over in August, and the first since a year-long effort to repeal Stroger’s controversial sales- tax increase died at both the county and state levels.
The second-largest county in the U.S., Cook continues to struggle with declining revenues and mounting health care costs amid a weak economy.
The 1% sales tax increase — which pushed Chicago’s sales tax to 10.25%, among the highest in the country — generated roughly $380 million in new money for the county this year. That’s less than top county officials projected when pushing for the hike last year, but remains key to maintaining the county’s fiscal position, according to credit analysts.
In June the county was hit with dual one-notch downgrades from Moody’s Investors Service and Fitch Ratings as analysts warned of a deteriorating credit profile. Ahead of today’s sale, Standard & Poor’s affirmed its AA rating on the county’s debt and Moody’s affirmed its Aa3 rating. Fitch rates the credit AA-minus with a stable outlook.
The $400 million issue was expected to include $300 million of refunding general obligation bonds, $95 million of tax-exempt GO bonds, and $5 million of taxable GO bonds.
Loop Capital Markets LLC is senior manager and Ramirez & Co. is co-senior manager on today’s transaction. Citi, Siebert Brandford Shank & Co., and William Blair & Co. round out the underwriting team. The county’s co-bond counsel are Chapman and Cutler LLP and Perkins Coie LLP. A.C. Advisory Inc. and Peralta Garcia Solutions LLC are co-financial advisers.
The size of the refunding amount could change as the county enters the market. The finance team originally planned to issue up to $350 million of refunding bonds but could scale that back to around $300 million or lower, depending on interest rates, according to Adela Cepeda, president of A.C. Advisory.
“It’s likely we won’t do the full $350 [million] — it’s very rate sensitive,” Cepeda said.
She added that the refunding will still generate strong savings for the county. “Rates are still on a historical basis very attractive, and this is a great opportunity for the county to realize some really significant savings and to take advantage of the market environment,” Cepeda said.
The county is likely to achieve a net present-value savings of around 5% — well over its refunding threshold of 3% — in the deal, which will refund debt originally issued in 1998 and 1999, according to Cepeda.
The new-money bonds mature in 2021, reflecting the relatively short life of much of the equipment — mostly medical technology, computers, and cars — that the county will purchase with the proceeds of the sale.
It is the first bond sale under the county’s new CFO, corporate banking veteran Jaye Morgan Williams, who took over in August after the last finance chief, Donna Dunnings, resigned over a controversy stemming from her relationship with a fired county employee who lied about his criminal background.
Williams took over the county’s fiscal reins as officials began crafting the fiscal 2010 budget, which Stroger is set to release tomorrow. The budget is expected to total roughly $3 billion, about a third of which goes to fund the county’s massive public hospital system.
Meanwhile, the year-long political battle to repeal Stroger’s controversial 1% sales tax increase appears to have died a final death last week after a state House bill that would have repealed the hike fell six votes short of the 71 needed to pass the chamber.
The effort died at the county level in September when the 17-member county board of commissioners failed to muster enough votes to override Stroger’s veto of their repeal.
