CHICAGO – Cook County, Ill.'s return to the market landed it about $57 million in present value savings on a $285 million refunding.
The deal was the first general obligation issue for the nation's second most populous county since early 2014.
The Tuesday pricing was overshadowed by attention on the state's $550 million GO sale that came Thursday.
Investors in the county's paper extracted a borrowing penalty over comparably rated credits as is the case with most Illinois-based issuers, especially ones that also are marred a connection with the Cook County seat of Chicago.
But the county's penalties were modest compared those paid by Chicago and Illinois, which are lower rated and more fiscally troubled.
Board President Toni Preckwinkle's administration acknowledged the record low interest rate environment as a key driver in the savings level, but officials also sought to highlight strides in narrowing the county's spread penalty over the last year as the administration has taken steps to stabilize its pension system.
"We were able to save millions on interest costs and better manage our legacy debt. We will continue looking for financially responsible opportunities to reduce costs to taxpayers and encourage long-term stability," Preckwinkle said in a statement.
The county's 10-year bond priced to yield 2.41%, 93 basis points over the Municipal Market Data triple-A benchmark, 73 basis points over the double-A, and 44 basis points over the single-A. The 15-year maturity carried a 2.82% yield, 103 basis points over the triple-A, 80 basis points over the double-A, and 48 basis points over the single-A.
The county's GOs are rated A2 by Moody's Investors Service, AA-minus by S&P Global Services, and A-plus by Fitch Ratings.
Ahead of the deal, Moody's Investors Service and Fitch Ratings both revised the county's outlook to stable from negative while S&P downgraded it one notch. At AA-minus it remains Cook County's highest rating. S&P assigns a stable outlook.
Illinois' 10-year bond Thursday landed 185 basis points over the AAA and 111 basis points over comparably rated BBB credits. Chicago's 10-year maturity in its most recent GO sale in January landed 253 basis points over the AAA benchmark and 139 basis points over the BBB. The city's GOs at the time were rated between junk and A-minus, with two in the BBB category. The higher-grade paper offered earlier this month by the Metropolitan Water Reclamation District of Greater Chicago saw spreads of 54 basis points over the AAA and 34 basis points over AA. It's rated between Aa2 to AAA.
Cook County noted that its bonds had traded at a 200 basis point spread in the secondary market after the Illinois Supreme Court voided state pension reforms in May 2015. The ruling reverberated across the state with issuers grappling with massive pension liabilities.
Barclays and Loop Capital Markets were lead managers on the deal that drew interest from more than 50 institutional investors. The county will return with a new money sale later this year.
The borrowing marked the county's first GO sale since early 2014, after which the Preckwinkle administration escalated efforts to tackle the problems of a pension system that was on course to exhaust assets in 2039 without action.
The county modified a funding proposal aimed at stabilizing its system saddled with a $5.9 billion unfunded tab for a funded ratio of 60.2%. The revised plan dropped benefit cuts after court rulings made clear direct cuts violated the state constitution, but kept the shift to an actuarially required contribution, or ARC.
The county has raised its share of the local sales by 1% to pay for the pension contributions and infrastructure. The supplemental payments could face a challenge due to existing statutes that limit pension contributions to the statutory formula and to property taxes. Gov. Bruce Rauner is reviewing legislation that would grant the authority Cook needs to make the payments.
