CHICAGO — The Chicago Housing Authority is planning to enter the market as soon as late next week to sell $25 million of taxable revenue bonds under the Build America Bond program in the agency’s first debt issue backed by its own newly minted AA-minus rating.
BMO Capital Markets is senior manager and Cabrera Capital Markets LLC is co-manager. Ice Miller LLP is bond counsel and Greene and Letts is co-bond counsel. The bonds mature between 2011 and 2029. The finance team intends to sell all the maturities as BABs, though some shorter maturities may sell as tax-exempt bonds depending on interest rates, said Treasurer Michael Gurgone.
The revenue bonds are special obligations of the CHA backed by its full faith and credit pledge that includes all its revenue. It will apply for the direct-pay interest subsidy under the BAB program.
Standard & Poor’s rated the bonds AA-minus and assigned the same rating to the CHA as an issuer credit rating. The agency lacks taxing authority and does not carry a direct GO rating. It has issued mortgage revenue bonds and its $200 million of 2006 capital program refunding bonds are rated in the double-A category based on their security of federal grants.
The stand-alone double-A rating underscores the dramatic physical and financial rebuilding of the authority and its stock over the last decade after its adoption of a transformation plan in 1999. The federal government took over the agency in 1995 due to a history of financial mismanagement and operational problems. With support from the U.S. Department of Housing and Urban Development, Mayor Richard Daley announced the rebuilding plan after the city won back control of the agency.
“The rating reflects CHA’s strong management over the last 10 years evidenced by a trend of improvement in overall operational performance, portfolio quality, and financial management,” Standard & Poor’s analyst Valerie White wrote.
“We are very pleased,” Gurgone said. “We have been working very hard on our finance and operations to reach this point.”
Proceeds of the bonds will finance energy-efficiency measures that are part of a larger initiative to lower energy consumption and costs. The savings in turn go to repay the bonds.
The projects include replacing 50-year-old boilers and water heaters with efficient models, asbestos abatement, the installation of remote monitoring devices, and the financing of guaranteed performance contracts to lower natural gas costs. As part of its larger energy initiative, the agency is hoping to redevelop one of its developments as a federally designated sustainable community.
The CHA — the country’s third-largest public housing agency — manages a housing stock of 17,813 units, including 6,092 family units, 9,178 senior units, and 2,543 scattered-site units. It expects to add 890 new and rehabilitated units this year bringing its total stock to 18,703, which would put it at 74.8% of its 25,000 goal under the plan for transformation.
The rehabilitation of senior and scattered site housing carries a $600 million price tag and the CHA expects to have spent $1 billion by the end of 2018 to finance its new or rehabilitated family properties that includes mixed-income developments completed in partnership with private developers. It has come under public criticism for the temporary displacement of residents during the reconstruction process and its mixed-income projects that rely on private development support have been hampered by the housing crisis and decline in market values.
The authority’s ongoing challenges include dwindling federal subsidies. “A key factor to maintaining the rating … will be CHA’s ability to maintain its financial position once the contracted subsidy amount under its MTW contract is no longer fixed and subject only to appropriations changes,” analysts wrote.
Under its moving-to-work agreement with HUD, the authority receives a set level of capital grants although those levels are set annually and declines are expected.