CHICAGO — Keeping Midwestern municipal market professionals busy this summer, Chicago and Illinois have each launched a competitive selection process to complete updated pools of qualified firms to work on future negotiated bond sales.
The Chicago deadline for underwriters and financial and swap advisers is July 19, with the approved lists expected to be announced the first week of August, according to city documents.
The Illinois proposals for financial advisers, underwriters, and bond and underwriters’ counsel are due Aug. 10 with the new pools being released by Labor Day, according to state debt manager John Sinsheimer.
While Chicago’s process has not changed significantly, Illinois has several substantive changes.
The state is requiring that all potential vendors attend a mandatory meeting at the James R. Thompson Center in Chicago on July 21. The times vary for bond counsel, advisory and underwriting firms.
“The meeting will provide us with the opportunity to explain what we are looking for in responses and to answer any questions,” Sinsheimer said Tuesday.
Firms that do not send a representative will be disqualified from working on state bond sales for the two-year term during which the list is valid.
The state also will select one bond counsel-disclosure counsel firm from the responses submitted instead of its current practice of establishing a rotating list of firms. The change stems from the increased scrutiny of municipal debt by the Securities and Exchange Commission and the Municipal Securities Rulemaking Board following the implementation of the Dodd-Frank financial reforms. The state wants to ensure consistency in the fiscal information provided in offering statements, roadshow presentations, and in public comments.
“The current structure of rotating bond counsel does not provide for the consistency required by disclosure requirements,” the Illinois documents read. “The state needs counsel that is held responsible for ensuring that it is and will be in compliance with all applicable statutes, regulations, rules and guidelines as they become effective from time to time.”
Illinois earlier this year expanded its pension disclosure in offering statements and reported an SEC probe of comments made regarding the impact of pension reform legislation. The firms are asked to include a minority-owned subcontractor in their proposal.
The state will pick firms from the new pools to work on deals over the next two years. Officials anticipate selling between $2 billion and $3 billion of general obligation bonds and sales-tax-backed Build Illinois bonds during the current fiscal year that runs through June 30. The timing and size of the offerings are not yet set.
“We will be looking at our cash-flow needs in the early fall,” Sinsheimer said.
The borrowing will finance projects in the state’s $31 billion capital program. The Illinois Supreme Court on Monday upheld the legality of the program, reversing an appellate court ruling earlier this year that found the public-works program legislation violated the state constitution’s single-subject clause.
Illinois was the top Midwestern issuer last year, selling more than $8.7 billion of GO, sale-tax backed and pension-related bonds in nine issues, according to Thomson Reuters. The state has favored negotiated sales, although it is required to sell 25% of its debt competitively.
Underwriters will be awarded 50 points if they don’t have any credit default swap activity. Firms must score 365 points or better to make the senior manager and book-runner list. Firms must score at least 315 points to make the co-senior manager list and 265 points for the co-manager list.
Underwriters must disclose whether they have participated in any credit default swap market-making activities related to the state within the last year, along with the volume of Illinois’ CDS trades. The state has also begun requiring routine reporting on the subject that is posted on the state comptroller’s website. The RFP documents outline how many firms will be asked to participate on deals based on their size and capital liability.
The documents also ask financial advisers and underwriters for recommendations on options for dealing with a swap associated with the state’s Series 2003B floating-rate bonds. The fixed swap payment is 3.89%. The floating swap payment is 67% of the London Interbank Offered Rate when one-month Libor is greater than or equal to 2.5% and the SIFMA swap index when it is less than 2.5%. Illinois’ liquidity and remarketing fees are 27 and 5 basis points, respectively.
The administration of freshman Chicago Mayor Rahm Emanuel will use its new pools to select the teams that will participate in general obligation, sales-tax bonds, motor-fuel tax borrowing, housing bonds, tax-increment financing, airport borrowing, and water and sewer debt over the next several years.
The city asks firms to disclose whether they have a local office and how many professionals are employed locally in addition to a firm’s commitment to the municipal finance industry and financing proposals submitted to Chicago since 2009.
The city is asking firms to provide one to three policy recommendations to address its structural budget imbalance. It faces an estimated $600 million to $700 million deficit in its next more than $6 billion budget. But its structural woes grow to more than $1 billion as the city faces $550 million in increased pension payments beginning in 2015 under state legislation approved last year.
Chicago ranked second after Illinois among Midwestern issuers last year, issuing $3.4 billion in 26 transactions. The city adheres to a goal of handing at least 25% of its bond work to minority and women-owned firms.q
The Chicago documents are at: