The Chicago schools CEO, Forrest Claypool, had previously said the district would continue to borrow to meet new capital needs.

CHICAGO — Junk-rated Chicago Public Schools borrowed $150 million through a private placement Friday, a move that allowed it to bypass a public offering and quickly raise new money for capital projects.

JPMorgan purchased the unlimited tax general obligation bonds at an interest rate of 7.25%.

"Today, CPS sold $150 million in bonds for capital projects at a significantly more favorable interest rate than its last issuance. These bonds will fund critically needed capital work," CPS senior vice president of finance Ron DeNard said in statement announcing the sale.

That's down from the bruising rate of 8.5% the district paid in February on a $725 million public offering, which came to close to hitting a state mandated cap of 9%. The new deal carries a final maturity of 2045 with the initial offering price at $90.835 but no structural details were disclosed.

The Municipal Market data's top benchmark on a 29-year bond was at 2.11% Friday, which would represent a 514 basis point spread. The district paid a spread of 580 basis points on the 28-year maturity in the last sale and 607 on the sale's 10-year bond with the high yield offering a deeply discounted price of $83.939 and 7% coupon.

The district stressed that the funds won't go to help balance its books as it works to close what it says is a remaining $300 million gap in its fiscal 2017 budget.

The deficit is down from $1.1 billion through cutting and new funding measures including a $250 million property tax hike approved by state lawmakers. The district is pushing teachers to cover more of their pension payments to help close the deficit.

The next budget will be released later in August.

Projects underway that will receive funding from the new sale include annexes, technology upgrades, emergency repairs, other facilities improvements, and maintenance needs.

The Chicago Board of Education posted a notice of the sale on the Municipal Securities Rulemaking Board's EMMA site but the offering statement was not immediately published.

"The district will provide an Official Statement concerning the bonds by Sept. 2, 2016" per its agreement with JPMorgan, according to a CPS official.

The closing was scheduled to take place Friday at Katten Muchin Rosenman LLP Chicago offices, according to a draft of the bond purchase agreement sent to The Bond Buyer.

Katten and Charity & Associates PC are bond counsel. McGuire Woods LLP is counsel to JPMorgan. Public Financial Management Inc. advised the district.

The board must approve the OS and ratings must be obtained from Fitch Ratings, Kroll Bond Rating Agency, and S&P Global Ratings, according to the draft agreement.

JPMorgan provides a portion of the district's roughly $900 million in existing credit lines that need to soon be replaced, and served as bookrunner on the district's February sale.

The short-term borrowing has been structured as tax anticipation warrants with an interest rate of 3.25%, expensive for debt that such a short term structure.

No additional board approval was needed for Friday's sale because the district had room to borrow under existing authorizations after scaling down its February issue from an initial authorized amount of about $1 billion.

The district was ready to bring an $875 million sale to market but when it struggled to find buyers, it delayed the issue a week allowing the finance team and Mayor Rahm Emanuel to lobby investors and returned with a sale that landed at $725 million.

CPS Chief Executive Officer Forrest Claypool said recently that the budget CPS unveils next month will be balanced and he believes will pave the way for the district to replace its expiring credit lines and return to the capital markets to borrow for capital projects.

Borrowing is "off the table for operating purposes" but "we will continue to borrow for capital" projects, Claypool said.

The district operates on a $5.7 billion budget and its liabilities include $9.6 billion of unfunded pension obligations and nearly $7 billion of bond debt.

Whether rating agencies and market participants will agree on the budget being balanced is unclear.

S&P Global Ratings warned in a recent report leaving the district's B-plus rating on Credit Watch that the district is using risky assumptions.

The report noted developments this year that included CPS's on-time payment of nearly $700 million to the teachers' pension fund and state legislative approval of measures to provide nearly $600 million in new funding.

The new funding will come in the form of the roughly $250 million new property tax levy, an additional $130 million in state poverty grants, and about $200 million from the state for teachers' pensions.

"The additional state funding from a high-poverty equity grant is currently one-time revenue, with decisions by the state regarding education funding in future fiscal years still uncertain," the S&P report said.

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