Chicago’s $1.3B Sales Tax Securitization deal placed on day-to-day status

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Chicago’s $1.3 billion deal Sales Tax Securitization Corp., tentatively scheduled to price Wednesday, was moved to the day-to-day calendar, according to deal participants. Bookrunner Loop Capital Markets LLC cited “market conditions.”

Proceeds of the deal will go to refund higher interest cost general obligation bonds, so the city is seeking to meet its targeted savings levels – both for budgetary relief and net present value savings – making the deal’s value especially subject to prevailing rates.

An initial read of the Municipal Market Data triple-A scale had yields rising one to three basis points in the 10-year municipal maturity and gaining two to four basis points in the 30-year muni maturity.

Treasury bond yields moved higher in early trade as stick priced continued to rise.

Chicago had been eyeing Halloween as the pricing date but as rates were fluctuating and supply grew, Chicago’s chief financial officer Carole Brown earlier this month considered putting off the sale. The finance team decided last week to move forward and on Thursday doubled the size to $1.3 billion from $665 million in an effort to wrap up all borrowing for refunding purposes before Mayor Rahm Emanuel leaves office in May. He is not seeking re-election. The finance team did say the sale’s timing remained subject to market conditions.
“We had identified targeted savings for the entire finance plan and we were able to achieve it," Brown said Friday. “Based on the interest we saw and the feedback and what we heard from investors, we saw there was the opportunity to complete the finance plan.”

The bonds issued through a bankruptcy-remote special purpose entity that insulates the debt from city operations carry AAA marks from Fitch Ratings and Kroll Bond Rating Agency and AA-minus from S&P Global Ratings following a one-notch downgrade last week due to newly published revised criteria on “priority lien” credits. The city’s GOs are rated from a low of junk Ba1 to a high of A with two ratings in the triple-B category. Brown said the downgrades should not “surprise” the market since the rating agency’s review was long in the works, though she expected the buyside would use it in pricing negotiations.

The sale tentatively offers a tax-exempt series for $917.6 million with serial maturities from 2022 to 2038 and term bonds in 2043 for $57 million, 2048 for $72 million, and two in 2053 for $311 million and $250 million. A taxable series for $388.6 million is offered in a 2053 term bond.

Loop, Ramirez & Co. Inc. and Stifel Nicolaus & Co. Inc. are the joint bookrunners. Ramirez was added after the city decided Thursday to upsize the deal to finish the program. The city met with investors in Boston, Chicago and New York to promote the credit that’s supported by both healthy coverage of pledged revenues and legal protections that insulate it should the city’s fiscal foundation collapse.

The sales tax securitization bonds have a first lien on the state-collected portion of the city's home rule sales and use taxes, and the local share of the statewide sales and use taxes after a state administrative fee.

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Primary bond market Chicago Sales Tax Securitization Corp City of Chicago, IL Illinois
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