CHICAGO – Pricing results on Chicago's $500 million general obligation refunding and restructuring bonds offered both good and bad news for the city.
Spread penalties were narrower in the city's first GO deal since approving a large property tax hike, but Chicago is still paying a punishing rate to borrow due to its ongoing pension woes and credit deterioration. Citi was bookrunner on Tuesday's pricing, which yielded 4.31% on a 10-year maturity and 4.875% on the long bond with a 22-year maturity.
The 10-year rate represented a spread of 253 basis points to the top-rated Municipal Market Data benchmark and 159 basis points over the triple-B benchmark credit. The 22-year rate landed 229 basis points over the triple-A benchmark and 139 basis points over the triple-B.
The city did not offer a 10-year maturity on its previous GO sale in July, when nine-year maturity landed 290 basis points over MMD's triple-A benchmark and an 18-year maturity was 270 basis points over MMD's top benchmark. In a GO sale in late May, Chicago saw spreads of 293 basis points on the 10-year maturity and 264 basis points on the longest 27-year maturity.
"We were very pleased with the work that Citi" did on the transaction as yields came down from pre-marketing levels Monday and were repriced after an initial pricing Tuesday, said Chicago's chief financial officer, Carole Brown.
The deal's overall spreads came in about 20 basis points under its summer sale and 40 basis points below the spring sale, Brown and deputy comptroller Jeremy Fine said. Both of those issues predated Mayor Rahm Emanuel's successful push for a $543 million annual property tax hike to help fund rising public safety pension costs. The city's $20 billion unfunded pension tab has dragged its ratings down.
The deal attracted 69 buyers, including 26 new to the city's GO paper. Overall, the deal was about two and half times oversubscribed with some early maturities oversubscribed by as much as six times, the finance team said.
Citi did take down into its own inventory some pieces of the 2028, 2029, and 2030 maturities. Overall, the deal captured a true interest cost of 4.5%. The sale included about $17.5 million of capitalized interest. About $220 million of the proceeds are paying down debt coming due for relief captured in the last budget. The city has vowed to phase out the "scoop-and-toss" practice by 2019. The remainder represented refunding for present value savings of 4.5% or $14 million.
A pre-marketing scale on Chicago's deal that circulated Monday offered a 10-year serial at 4.35% and 22-year bond at 4.95%.
The city carries a junk-level rating of Ba1 from Moody's Investors Service, with a negative outlook; BBB-plus ratings from both Fitch Ratings and Standard & Poor's with both assigning negative outlooks; and is rated A-minus with a negative outlook by Kroll Bond Rating Agency.
Other underwriters on the deal included Cabrera Capital Markets, PNC Capital Markets LLC, Backstrom McCarley Berry, Drexel Hamilton LLC, Harvestons Securities, Inc., North South Capital LLC, and Podesta & Co.
