CHICAGO—Illinois received $2.2 billion of orders from 54 investors on its $750 million general obligation bond sale Thursday as its yield penalty was little changed from a sale earlier this month.
The state's true interest cost settled at 4.0961 % compared to a 4.082% TIC on its $250 issue GO sale earlier this month, according to assistant state budget director Abdon Pallasch. The state's TIC compares to one of 4.46% on its $1 billion sale in February and 5.05% on its $1.3 billion issue last June.
"This is one of the lowest rates the state of Illinois has paid in the past decade," Pallasch said. "We got better rates than last time on the shorter-term paper, marginally higher rates on the longer-term."
Proceeds of the sale will finance projects from the state's ongoing $31 billion capital program and are expected to cover the state's borrowing needs for the rest of the year although a final deal late in the year is possible, state debt manager John Sinsheimer has said.
The state's early maturities paid yields of .35% and .85% while its 10-year bond paid a yield of 3.38%, and its long bond maturing in 2039 paid a yield of 4.54%.
The 10-year yield was 110 basis points over the top-rated Municipal Market Data benchmark scale rate of 2.28%. That compares less favorably to a spread of 95 basis points on the state's last GO sale when the 10-year MMD was at 2.47%.
The state's 25-year yield settled at 111 points over the comparable top-rated MMD bond of 3.43%. That compares to a spread of 105 basis points on the state's February sale which paid a yield of 4.54% while the MMD rate was at 3.49 %.
The rates remain sharply better than deals prior to passage of state pension reforms in December which triggered a narrowing of its spreads. They further improve after Gov. Pat Quinn announced in March his plan to push to make permanent an expiring income tax hike. Many investors have said they view the value of the state's bonds as more stable now.
The state paid a spread of 129 basis points on a GO sale in February when its 10-year serial maturity paid a yield of 3.81%. The February rate compared favorably to spreads of more than 160 basis points on the 10-year maturity in the state's previous most comparable sale in June.
The deal Thursday faced more competition on a $7 billion calendar compared to its last sale during a week with a $4 billion calendar.
Wells Fargo Securities served as bookrunner with J.J.B. Hilliard, W.L. Lyons LLC/Melvin & Co. LLC, Mesirow Financial Inc., and U.S. Bancorp served as co-senior managers. Public Resources Advisory Group advised the state.
The state's low single-A ratings, the weakest among states, have remained unchanged although Standard & Poor's shifted the state's outlook to developing after the pension reforms passed.
Standard & Poor's said this week in a special commentary that legislative decisions over the next 50 days are pivotal to stabilizing the state's credit. A decision to leave a temporary 2011 income tax hike in place, combined with recent pension overhaul legislation, would put Illinois in position to stabilize its deteriorated credit quality, Moody's Investors Service said.
This week House Speaker Michael Madigan, D- Chicago, said the income tax vote currently lacks sufficient votes to bring the measure to the floor for a vote. "Every person in the legislature is going to be called upon to make a budgetary decision either a reduction budget or an as-is budget or a slight-increase budget," Madigan said. The General Assembly is scheduled to adjourn at the end of May.
