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Cook Goes To Town With $1B

CHICAGO — Cook County, Ill., on Wednesday and Thursday will price $1.05 billion of new-money and refunding bonds divided into five series in a transaction that likely marks the last issue under county board president Todd Stroger’s watch.

The borrowing will push the county’s outstanding debt to $3.5 billion from roughly $3.2 billion.

Anchored by Chicago, Cook is the second-largest county in the U.S., and is considered a strong credit. Like other governments it’s also struggling with declining revenue.

A pending repeal of a portion of the sales tax rate could mean more pressure for the double-A rated county, credit analysts said.

This week’s transaction is a mix of refunding and new-money debt as well as taxable Build America Bonds and taxable and tax-exempt general obligation debt. It will include $400 million of general obligation refunding GOs, $242 million of taxable refunding bonds, and $80 million of taxable GO pension funding bonds.

Morgan Stanley will serve as senior manager on the issues. Rice Financial Products Co., is co-senior manager and Cabrera Capital Markets LLC, Citi, JPMorgan and William Blair & Co. are co-managers.

The county will also offer $332 million of additional new-money debt. The sizes are subject to change, but are expected to feature around $308 million of BABs and $23 million of taxable GOs.

Loop Capital Markets LLC is the senior manager on the new-money issue and Bank of America Merrill Lynch is the co-senior manager. Barclays Capital, Samuel A. Ramirez & Co., Siebert Brandford Shank & Co., and Stifel Nicolaus & Co. are co-managers.Chapman and Cutler LLP is co-bond counsel for both deals, along with  Pugh, Jones, Johnson & Quandt, PC.

The refinancing will achieve interest-rate savings and shift all but 7% of Cook’s debt portfolio into a fixed-rate mode. Proceeds from the $80 million taxable GOs will go to cover a 2007 pension payment.

The new-money portion of the borrowing will finance improvements across the county’s vast health-care system, which is the third largest local government-operated provider in the U.S.

The system’s budget totals roughly $1 billion, a third of the county’s total $3 billion annual budget.

A portion of the proceeds is expected to help finance renovation of the historic former Cook County Hospital building on Chicago’s West Side.

The borrowing  will likely be the last for the lame-duck Stroger administration. The county has been run by a Stroger — either Todd or his father, long-time county chief John H. Stroger — for the last 16 years. Todd Stroger was appointed to the position in mid-2006 after his father suffered a severe stroke. John Stroger later died, and Todd Stroger won the seat in a 2007 election.

In February Stroger came in last in a four-way Democratic primary race, a defeat that some said was driven by his support for an unpopular 1% increase in the county’s sales tax rate. Long-time Chicago Alderman Toni Preckwinkle won the Democratic Primary and faces Republican candidate Roger Keats in November.

Cook County has pledged its full faith and credit to all the bonds. Despite recent revenue declines, the county maintains reserve levels that are more than 8% of expenditures, according to Standard & Poor’s.

The county is likely to face decreased budget flexibility when its sales tax rate drops to 1.25% from 1.75% on July 1. The county board last November voted to repeal half of the intensely unpopular tax hike. Stroger administration finance officials said the move could mean the loss of up to $190 million annually.

Credit analysts  fear the revenue loss amid a weak economy will pressure the county’s finances. At the same time Cook faces ongoing pressures tied to its massive health care system and growing pension and claims liability payments that have been deferred in the past, analysts said.

Fitch Ratings and Standard & Poor’s both assigned a rating of AA with a stable outlook to the debt and affirmed the same rating for the county’s roughly $3.2 billion in outstanding GO debt. Moody’s Investors Service rates Cook County Aa3.

The county’s chief revenue sources are fees, property taxes, home rule taxes, and intergovernmental transfers, according to bond documents. Its main expenditures are corporate fund expenses,  which include pension and claims liabilities, health system costs, and public safety. Debt service accounts for roughly 5.3% of the county’s annual budget and capital improvements account for another 14.5%.

The county did not return telephone calls seeking comment on the deal.

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