CHICAGO – Junk-rated Chicago Public Schools will ask its board Wednesday to authorize $397 million of short-term, state grant-backed borrowing and $215 million of general obligation refunding bonds.

The $215 million would add to $285 million of existing long-term bonding authority bringing to $500 million the amount of issuance authorized in fiscal 2018 under the district’s GO-alternate revenue bond security, officials said.

The $397 million grant anticipation revenue notes and $215 million authorization appear on the board’s agenda that posted Monday.

“With the fiscal year '17 budget questions behind us, CPS is beginning to turn its attention to the challenges that we will face in fiscal year 2018,” officials said. The $500 million will both refund outstanding debt and reimburse the district for prior obligations.

The district said it could not answer questions about any additional long-term borrowing plans at this time but it expects to maintain $1.55 billion of short-term borrowing authority. The board relies heavily on cash flow borrowing to stay afloat and raised the level of tax anticipation note-backed lines last year. It expects to close out fiscal 2017 with $950 million outstanding TANs which mature in December.

CPS announced the $389 million GAN issue on Friday to provide the cash flow needed to keep schools running through the end of the school year next month. The district will borrow against $467 million it’s owed by the state for its share of block grants for fiscal 2017 which ends June 30.

The cash-strapped state has made only one of its quarterly payments and might not make another before the fiscal year ends. The state’s tardiness has doubled over the last year, the comptroller’s office said Monday.

The combination of some cuts and operating savings along with the borrowing proceeds “should generate cash flow through the end of the year” that allows the district to meet payroll, keep schools open, and make good on $470 million owed next month on its $733 million pension contribution, Chicago’s chief financial officer, Carole Brown, said on Friday.

Chicago Public Schools chief Forrest Claypool
Chicago Public Schools chief Forrest Claypool speaks to the media earlier this year. His district is making new borrowing plans.

The junk-rated district had previously warned that schools might close early in June due to red ink left after Gov. Bruce Rauner vetoed state pension funding help.

The district has paid in the 3% to 4% range over the last two years for TAN-backed credit lines but it’s unclear how much the district will end up paying on the GAN issue.

On long term borrowing, the district struggled with market access on its last public offering early last year after a week’s delay during which Chicago Mayor Rahm Emanuel and CPS officials lobbied investors. The district’s top yield landed at 8.5%. It was able to capture a lower rate of 7.25% on a $150 million private placement in July with JPMorgan.

The district late last year pulled the plug on a $426 million GO bond sale due to rising rates after the November election. The district would have faced investors with new downgrades fresh on their minds. “Timing of the sale of the bonds will be determined based on market conditions, but CPS expects to issue the bonds in the next calendar year,” the district said at the time.

The district fared better when it returned to the market late in the year with an A rating on $500 million of bonds backed by its new $45 million capital improvement tax.

The district made gains over the last year in chipping away at a $1 billion structural deficit through cuts and a $250 million tax levy for pensions, but it continues to bank on future state funding increases which are considered a risky gamble.

Even if the state can resolve its budget impasse and come through with more aid and pension help, the district likely still faces red ink. The Emanuel administration said last week all options on the table as it considers ways to help the district stabilize its precarious balance sheet.

Three rating agencies assign junk ratings to the district’s $7 billion of GOs while Kroll bond Rating Agency assigns a low investment grade rating.

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