"The numbers reflect the fact that they have limited market access," Richard Ciccarone, president of Merritt Research Services, said of Chicago Public Schools.

CHICAGO – Chicago Public Schools pulled the plug until 2017 on a $426 million bond sale originally planned this month.

"Given recent market movements, the board has delayed the timing of its $426 million alternate revenue general obligation bonds, similar to other issuers," CPS said of the post-presidential election rise in yields. "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 junk-rated district, which would have headed into the market with another downgrade fresh on investor minds, struggled with lackluster interest in its last public market bond sale in February.

CPS posted a disclosure notice on the delay along with information on its Nov. 10 closing on a costly tranche of $475 million of tax anticipation notes under a credit line with JPMorgan. It's the district's third use of a credit line in fiscal 2017. The district earlier issued $150 million of TANs and $325 million of TANs under credit line agreements provided by JPMorgan.

The latest cash flow notes mature in December 2017 and the floaters paid an initial offering yield of 4.617 %. The floating-rate is based on the lesser of 9% or 70% of the London Interbank Offered Rate plus an applicable spread of 4% based on the school district's ratings. The spread rises should Fitch Ratings, S&P Global Ratings or Kroll Bond Rating Agency drop the district's battered credit into the CCC category, hitting a peak of 6%. The spread is based on the district's lowest rating.

The other two note lines also mature in December 2017 and their rates are similarly set.

S&P on Nov. 9 downgraded CPS to B from B-plus, five notches below investment grade, and left the credit with a negative outlook.

Fitch Ratings last week affirmed the board's $7 billion of debt at B-plus with a negative outlook. Kroll Bond Rating Agency rated the deal at the investment grade level of BBB with a negative outlook.

Moody's Investors Service in September lowered the board's rating to B3 and assigned a negative outlook.

The district's cash flow borrowing costs have risen since last year. In two $250 million TAN tranches in October 2015, the district paid a rate of 3.25% on one and 70% of LIBOR plus a spread of 2.75% on the other.

The offering statement on the notes reports that proceeds will cover educational costs and allow the district to reimburse itself for payments it made to terminate interest rate swap contracts after rating downgrades triggered termination events.

The district's heavy use of short-term borrowing to stay afloat and a Chicago Board of Education authorization increase in fiscal 2017 to $1.55 billion from $1 billion last year is widely viewed by rating agencies and investors as a worrisome sign of the district's precarious financial footing.

The board also expects to close on a $600 million line of credit of credit in January 2017, which it expects to only be outstanding for approximately four to six months, Kroll said in its latest review. "The board has received commitments from two large banks for this capacity and indication of serious interest from a third," Kroll said. The structure does not include acceleration provisions except for payment default or filing for bankruptcy.

The district projects it will have $950 million in TANs outstanding at the close of fiscal 2017 on June 30.

The hefty short-term rate and the increase over last year "reflect the enormous dependence the district has on short-term borrowing and the market's anxiety that the school board's problems -- although they've made progress -- are far from resolved," said Richard Ciccarone, president of Merritt Research Services. "The numbers reflect the fact that they have limited market access."

After the district's troubled February pricing, schools chief executive officer Forrest Claypool acknowledged the uncertainty over future market access.

The deal was delayed for a week while Mayor Rahm Emanuel, CPS leaders and the finance team lobbied investors, resulting in a scaled-down transaction -- with some planned proceeds use built into the $426 million issue – that landed at a top yield of 8.5%, just below a state-imposed cap of 9%.

Claypool later expressed confidence in the district's ability to tap the market after winning more state dollars and two special property tax levies for teacher pensions and capital improvements.

Gains in chipping away at a $1 billion deficit have been dampened by uncertainty over whether the state will come through with $215 million in additional pension help, which is contingent on state lawmakers agreeing on pension reforms next year.

The district also recently struck a new four-year teachers' contract that will cost $55 million more than originally planned this year and rise to $100 million in the later years of the contract when raises kick-in.

"That's very significant and fundamental to their long-term fiscal stability but investors and analysts are keeping the district under intense watch because of their short-term borrowing and unresolved situation with Springfield," Ciccarone said. "If you get resolution you could pay lower rates."

Lawmakers, who return to work Tuesday for a brief veto session, have said they plan to return during a lame-duck January session when a simple majority will be needed to pass a spending plan and pension reforms, unlike special sessions when a higher vote threshold is needed.

A feud between first-term Gov. Bruce Rauner, a Republican, and the Democratic controlled General Assembly has resulted in only piecemeal approval of spending for fiscal 2016 and 2017.

The district last year had planned a November-December sale but ended up pushing it off until early 2016. Sources had attributed that delay to the need to release the district's latest comprehensive annual financial results.

The $426 million sale was to have been structured like most of the district's other outstanding bonds backed by both a GO pledge and a dedicated alternate revenue stream in the form of state aid. JPMorgan and Loop Capital Markets are leading the transaction.

The board has yet to say how it plans to segregate the capital improvement property tax levy to secure bonds to bondholders' favor.

The board anticipates selling approximately $840 million of bonds secured by its new $45 million statutorily authorized capital improvement property tax levy "shortly," Kroll said.

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