CHICAGO — With headlines over its budget struggles and recent rating downgrades subsiding, Chicago plans this week to sell a good chunk of a $804 million new-money and refunding general obligation issue that was put on hold earlier this month.
While some of the market volatility that helped sideline the deal earlier has eased, it will still have to compete for buyers facing $11 billion in supply — including Illinois’ $1.46 billion tobacco bond issue. Chicago is tentatively set to price on Wednesday $213.6 million of Build America Bonds and $467.5 million of non-BAB taxable new-money and refunding bonds. The city is holding back a series of $123 million of tax-exempt refunding bonds as rising interest rates have cut into savings.
“The mayor’s budget passed last week and we’ve done some additional investor outreach and we think the market is more settled than it felt a couple weeks ago,” Chicago chief financial officer Gene Saffold said Friday of the decision to move forward with the transaction. He said he doesn’t believe the state’s offering will hurt the city’s pricing as that deal is tax-exempt and limited to 17 years.
Loop Capital Markets LLC is senior manager and Wells Fargo Securities is co-senior. In addition to a list of co-managers on the deal, the city has a large selling group in hopes of clearing all its paper at yields in line with its credit quality. The city was penalized on its recent waste and wastewater deals due to concerns over the state’s fiscal crisis and its own budget struggles.
Ahead of the sale, Fitch Ratings downgraded Chicago’s $6.8 billion of GOs one notch to AA-minus with a stable outlook and Standard & Poor’s dropped the credit to A-plus with a stable outlook. Moody’s Investors Service in August lowered the GOs to Aa3 with a stable outlook.
The Chicago City Council earlier this month overwhelmingly approved Mayor Richard Daley’s $6.15 billion budget for fiscal 2011 that relied primarily on reserves, debt restructuring and other non-recurring revenue to eliminate a $654 million deficit without the need for tax, fine or fee hikes.
