CHICAGO - Cook County, Ill., plans to begin remarketing $130 million of taxable variable-rate debt as early as today before entering the market again within the next 45 days to sell $250 million of tax-exempt general obligation bonds.
The remarketing will allow the county to replace its now-downgraded bank liquidity provider - after an effort the county's chief financial officer called "tenacious" - while the new-money borrowing will finance a number of capital improvement projects and equipment purchases.
The $250 million new-money deal - scaled back from county President Todd Stroger's original plan to issue $740 million - comes after a long, heated battle between Stroger and county commissioners, and following criticism from civic watchdog groups and newspaper editorial boards.
Critics contend the borrowing is unnecessary in light of last year's move to raise Cook County's sales tax to the highest in the nation. In response, the Stroger administration has painted the debt issuance as routine government practice needed to finance capital projects that the county board has already approved in previous budgets.
The second largest county in the nation, Cook will have roughly $3.1 billion in debt after the upcoming fixed-rate GO sale. Despite the relatively large debt burden, the double-A rated county enjoys a large, diverse tax base anchored by Chicago and a fiscal position that will be boosted by the sales tax hike, credit analysts say. Roughly 20% of the county's debt, including the upcoming remarketing, is in variable-rate mode.
The county's finance team plans to reoffer the $130 million of taxable variable-rate debt as two separate series, allowing it to shed its standby bond purchase agreement with the downgraded Depfa Bank Plc and enter into two new liquidity agreements.
An $80 million series will be supported by a standby bond purchase agreement with Harris NA, and a $50 million series will feature an SBPA with Northern Trust Co. The debt will remain in weekly variable-rate mode.
George K. Baum & Co., which acted as senior manager on the original sale in 2004, is remarketing the bonds.
The county was "relentless" trying to find new liquidity providers to replace Depfa, according to county chief financial officer Donna Dunnings.
"It's been a very tenacious process for us," she said. "It's been hard and relentless, but we did find someone. Other municipalities are having problems replacing Depfa - but no government should have liquidity providers that have been downgraded. Governments should use all means necessary to make sure that their downgraded liquidity providers are replaced."
Despite the difficulties in finding new liquidity given current market conditions, the county did not have to pay higher fees than in previous years, Dunnings said.
The original SBPA with Depfa was scheduled to terminate in August 2014. The new agreements with Harris and Northern Trust will terminate in April 2012 unless events occur that trigger early termination provisions.
Proceeds from the original bonds funded some of the county's self-insurance liabilities and paid for capital projects that did not qualify for tax-exemption under the federal tax code.
In advance of the sale, Fitch Ratings upgraded its short-term rating to F1-plus from F1 based on the new liquidity providers. It affirmed its AA long-term rating - and its negative outlook - on the county's GO debt ahead of the sale.
Moody's Investors Service affirmed its VMIG-1 short-term rating and Aa2 long-term rating with stable outlook on the county's debt. Standard & Poor's had not released a rating on the bonds to be remarketed as of yesterday, but it maintains a AA rating with a stable outlook on Cook's debt.
After the remarketing, in the next 45 days the county expects to offer $251 million of fixed-rate GOs to finance capital projects. The county board last week approved the borrowing - as well as the finance team - after the administration agreed to scale it back from the original size of $740 million in new money.
A key piece of Stroger's $2.9 billion 2009 budget, the $740 million borrowing would have included money for a one-time pension payment, self-insurance claims, and a number of capital improvement projects.
After originally approving the full borrowing - which also included authority to refinance up to $3 billion in outstanding debt - several commissioners began to regret their vote as the plan came under rising attack from Chicago media and fiscal watchdog groups like the Civic Federation of Chicago.
To block the county from going to market with the bonds, a majority of commissioners refused to sign off on the administration's hand-picked finance team until the borrowing was cut down to include a smaller number of carefully chosen capital projects.
Last week the board approved the smaller issuance as well as the finance team, even as Chicago newspapers continued to criticize the deal, with a Chicago Tribune editorial headlined "Stroger: 'Borrow More!' " published on the day of the vote.
The team assembled for the capital improvement bond issue includes Loop Capital Markets LLC as senior manager and Samuel R. Ramirez & Co. as co-senior manager. Co-managers are Citi, SBK Brooks Investment Corp., Siebert Brandford Shank & Co., and William Blair and Co.
Mesirow Financial Inc. will be lead financial adviser, and A.C. Advisory Inc. and Davis Financial co-financial advisers. Chapman and Cutler LLP is bond counsel and Perkins Cole LLP is co-bond counsel.
Cook County's $3 billion of debt remains "manageable given its current substantial budgetary and taxable resources and our expectation that these will continue to grow over time," Moody's analyst Edward Damutz wrote in a recent report.
Most of the county's debt is scheduled to amortize over 30 years, with only 34% scheduled to be retired within the next 10 years, Moody's noted. While analysts believe that the county's finances will be strengthened by the recent 1% sales tax increase, they warn that the new revenue will fall below expectations due to economic weakness in the region and nation.
As of late last year, the sales tax hike was expected to bring about $380 million in new revenue in 2009, down from the $426 million originally projected when the increase was approved early in 2008.