CHICAGO – Cook County, Ill., the nation’s second most populous county and home to Chicago, is eyeing a refunding of $334 million of 2006 general obligation bonds ahead of a new money sale of as much as $140 million later in the year.
The refunding would mark the county’s first deal since January 2014 and comes after the adoption late last year of a $4.5 billion 2016 budget, which relied on cuts and tax hikes to fully erase a $200 million preliminary budget gap.
The county expects significant present value savings although did not put a figure on the expected number.
“The savings will be targeted to moderate our year-over year increases in debt service, when including forecasted new money over the next decade, that will lead to inflationary growth in debt service rather than some of the years where we have sharper increases currently,” the finance department said.
The tax and fee hikes came on top of a 1 cent increase in the sales tax approved over the summer. Most of the $308 million expected from the tax increase in fiscal 2016 will cover a supplemental $270 million contribution to pensions over and above the county’s statutory payment. The remainder will fund transportation infrastructure needs and pay debt service.
The team selected to market the current refunding includes Loop Capital Markets LLC and Barclays Capital Inc. as senior managers. Siebert Brandford Shank & Co. LLC and William Blair & Co. LLC are co-senior managers with another four firms rounding out the underwriting syndicate as co-managers.
A.C Advisory Inc. and Columbia Capital Management LLC are financial advisors. Chapman and Cutler LLP and Burke Burns & Pinelli Ltd. will serve as co-bond counsel. Katten Muchin Rosenman LLP and Reyes Kurson Ltd. are co-disclosure counsel. Nixon Peabody is pension counsel and Charity & Associates is underwriter’s counsel.
The Cook County Board of Commissioners’ finance committee will review the authorization of up to $375 million requested by board president Toni Preckwinkle at a board meeting May 11.
“The exact maturities of refunded bonds will be based on market conditions,” the finance department said. “The par of refunding bonds will also be impacted by premium/discount conditions in the market.”
Cook County plans new money borrowing of $100 million to $140 million later in the year. The county’s $3.6 billion of GOs carry ratings of A-plus from Fitch Ratings, an A2 from Moody’s Investors Service, and AA from Standard & Poor’s. All assign a negative outlook.
Like Chicago and its sister agencies, the county is strained by its unfunded pension liabilities. Preckwinkle last year modified a funding proposal aimed at stabilizing its system saddled with a $6.5 unfunded tab. The plan dropped benefit cuts after court rulings made clear direct cuts violated the state constitution, but kept the shift to an actuarially required contribution.
The county will make its regular $195 million payment based on the current statutory formula tied to a percentage of employee contributions and make a supplemental payment to meet the ARC.
While the plan might not run afoul of the constitution, the county’s move could face two potential legal questions without a change in state law. They include whether it can contribute an amount above the statutory formula – a reason cited by Chicago for not raising contributions on its plans – and for its use of non-property tax revenue to cover payments.
