CHICAGO – Chicago Public Schools closed Monday on the private placement of $112 million of grant anticipation notes, rounding out $387 million of planned borrowing to meet its fiscal 2017 obligations, including a teachers’ pension payment due later this month.
The district in May announced its intention to leverage up to 85% of the $467 million of block grants the state owes the district. The state is three quarters behind in payments due to a budget crisis that’s driven its bill backlog up to $15 billion.
The cash was needed due to Gov. Bruce Rauner’s veto of $215 million of pension help and ongoing grant payment delays.
The district closed last week on $275 million of GAN borrowing but the $112 million trance could not be completed until this week because the Illinois Department of Education needed to submit a voucher to the state comptroller for the grant payments.
The initial rate on the $275 million was set at 6.39%. The initial rate
The initial rates will be reset next month and then adjusted monthly. The rates will be based on 70% of the London Interbank Offered Rate plus a spread of 550 basis points. The spread is up from 400 basis points on the district’s $1.55 billion of fiscal 2017 tax anticipation note issues of which $950 million remains outstanding. The TANs mature in December.
CPS blamed some of the increase in its short-term borrowing costs on the state’s fiscal distress that impacts borrowers across the state. Market participants attributed the increase to both the district and state’s precarious fiscal condition.
“Governor Rauner’s total failure to fully fund education in a timely way means that hundreds of districts around the state including Chicago are scrambling to make up for the state’s funding shortfall,” CPS spokeswoman Emily Bittner said in a statement.
CPS sought to characterize the punishing rate as favorable to the up to 12% rate paid by the state to lenders that provide funds to vendors who participate in the state’s vendor assistance program.
Recent one-year note sales that carried top MIG1 or SP-1-plus ratings priced at below 1%.
The borrowing will allow the junk-rated district to hobble through the fiscal year’s end on June 30 and meet its teachers’ pension payment obligations.
Rating agencies have been watching closely for any signs that the school district is at risk of losing market access given its precarious liquidity.
Operating aid has been forwarded to schools in a timely fashion but the state is three quarters behind in distributing grants amid an impasse in Springfield that has left the state without a budget for almost two years.
PFM Financial Advisors, LLC and Columbia Capital Management LLC were financial advisors on the GANs. Katten Muchin Rosenman LLP and Cotillas and Associates were co-bond counsel.
