Chicago Public Schools plans up to $432 million of refunding bonds

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The Chicago Board of Education signed off on up to $432 million of general obligation refunding bonds as work continues on a fiscal 2020 budget and negotiations on a new teachers’ contract heat up.

The refunding would be completed “for traditional savings” and not for restructuring purposes, said board spokeswoman Emily Bolton. “While savings are contingent upon market conditions, the district hopes to see $10 million to $15 million in cost savings in fiscal 2020.”


It’s not clear whether all the savings are being taken up front or there’s a net present value savings over the life of the bonds.

Interest rates remain steep for junk-rated Chicago Public Schools but it’s been chipping away at those penalties on both short and long-term borrowings.

The district’s last competitive cash flow note sale drew widespread interest. Yields landed at 1.95% and 2% on two tranches of an unrated $250 million sale of tax anticipation notes that come due in October. Those rates are down from 2.45% and 2.65% in TAN sales late last year. The district paid punishing rates of 4.8% in prior fiscal years.

The long 28-year bonds in the district’s last GO sale in December landed at a spread of just over 200 basis points to the Municipal Market Data top-rated benchmark. The district saw a punishing 480 bp spread on its long 29-year bond in a GO sale just ahead of mid 2017 passage of new state aid.

An infusion of new state operating and pension funding help in 2017 along with several local tax levy hikes helped trim a $1 billion deficit, easing a budget and liquidity crisis that has kept three of the district’s four bond ratings deep in junk territory.

Fiscal pressures still hold a grip on the district heading into the next fiscal year. The budget for the fiscal year that began July 1 is expected to be unveiled and approved later in the summer.

The board last year approved a $6 billion fiscal 2019 operating budget, $1 billion capital program, and more than $2 billion of new money, refunding, and short-term borrowing at its July meeting, but there have been past years where the spending plan was not unveiled until later in the summer.

The recent TAN offering statement warned “the board’s ongoing financial outlook will continue to be determined by factors such as labor, pension, and debt service costs as well as the ability of the board to raise revenues and reduce certain expenditures.”

The district’s 2019 pension contribution totaled $809 million, of which $239 million is coming from the state and $430 million from a special pension levy. The teachers’ fund is at a 50.1% funded ratio.

The district has enjoyed positive rating actions since the state approved new funding. In July 2018, S&P Global Ratings upgraded it to B-plus from B and Moody's Investors Service boosted the district to B2 from B3.

Teacher contract negotiations resumed Thursday between the Chicago Teachers’ Union and officials from the district and new Mayor Lori Lightfoot’s administration.

The two sides have butted heads and the union has warned a strike is a possibility. That would put a black mark on Lightfoot’s early tenure. The school year begins the day after Labor Day but the earliest teachers could strike is Sept. 26 based on required legal procedures.

The CTU has slammed a city/district $300 million contract offer that provides a 14% raise implemented over five years and it wants a commitment on additional school nurses and social workers and smaller class sizes.

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Primary bond market School bonds Public school funding Refunding bonds Board of Education of the City of Chicago Illinois
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