CHICAGO — The Chicago City Council yesterday approved the issuance of up to $2.2 billion of revenue and general obligation bonds to raise new money for infrastructure and wastewater projects, to refund existing debt for savings, and to restructure some insured variable-rate debt that’s been hit with higher interest rates.
The council approved ordinances authorizing the sale of up to $900 million of new-money and refunding GO debt, up to $700 million of new-money and refunding wastewater revenue bonds, and up to $600 million of O’Hare International Airport general airport refunding bonds. The city doesn’t anticipate tapping the full authority in any of the ordinances, but sought room in each should additional refunding opportunities arise.
The council also approved changes in the language on existing GO and revenue bond ordinances to permit the conversion of variable-rate debt currently backed with insurance and a liquidity facility to a variable-rate structure solely with either a liquidity facility or letter of credit.
“These bond issuances will provide new money for infrastructure improvements, achieve interest cost savings by refunding debt issued at higher rates and ultimately lessen the city’s risk associated with variable rate debt,” chief financial officer Paul Volpe said in a statement. “Given the current market, we think this is a responsible, prudent plan of action.”
The fixed-rate GO sale will include $90 million of new money and at least $210 million to refund floating-rate bonds that carry insurance from Financial Guaranty Insurance Co. All three rating agencies have stripped the insurer of its triple-A status and rate the company between the double-B and triple-B categories. The ordinance leaves room for the refunding of up to another $600 million if the opportunity arises. The city expects to price the deal this quarter.
The interest rate on the variable-rate bonds that are remarketed weekly had ranged between 4.5% and 7.5% when the ordinance was introduced last month to the council. The liquidity provider — Depfa Bank — currently holds the bonds, and the city at the time was paying a rate in the 4% range. Depfa-First Albany Securities LLC is senior manager and Jackson Securities LLC is co-senior manager.
The city plans to tap about $150 million of the $700 million wastewater revenue bond authorization for new money to finance routine sewer system improvement projects, leaving the additional room for possible refundings in the fixed-rate deal that is slated for the third quarter. Cabrera Capital Markets Inc. is serving for the first time on a city deal as the book-running senior manager, with RBC Capital Markets serving as the co-senior.
Chicago will convert about $300 million of variable-rate O’Hare bonds that carry insurance from CIFG Assurance NA, which is now rated in the single-A category. The city will drop the insurance on the bonds that are remarketed weekly and will include a letter of credit from Dexia Credit Local, which provides a liquidity facility on the current issue. Dexia currently holds the bonds and the city is paying a maximum rate in the low 5% range, though in previous remarketing cycles it has paid a rate as high as 7%.
The city also now expects to convert about $110 million of insured variable-rate sales tax-backed bonds backed by sales tax, dropping the insurance in favor of using only a bank liquidity facility. Chicago’s floating-rate exposure includes $2.7 billion of variable-rate demand bonds and $150 million of auction-rate securities in an overall general obligation and revenue-backed bond portfolio of about $15 billion.
The city has $150 million of ARS under its Midway Airport revenue bond program. Following the collapse of the auction-rate market earlier this year, the rates rose to a maximum rate of 150% of the London Interbank Offered Rate. The city intends to leave the auction-rate structure in place as officials hope this year to enter into a long-term concession lease of Midway with a private operator in exchange for an upfront payment.
