CHICAGO — Illinois will sell $1 billion of general obligation bonds in a negotiated sale on Feb. 6, state capital markets director John Sinsheimer said Monday.
Ahead of the deal, Illinois finance officials plan to hit the road to meet with investors and rating agency analysts on the state's latest financial projections and impact of its newly adopted pension overhaul.
Illinois officials and members of the finance team will meet with investors in Chicago and on the east and west coasts, and with rating agencies.
The state will sell tax-exempt bonds with a 25-year maturity. The deal will come after Gov. Pat Quinn's Jan. 29 state of the state address and ahead of the scheduled release of a fiscal 2015 budget later in February.
"With the signing into law of the pension reforms we will be doing an extensive roadshow to meet with investors," state capital markets director John Sinsheimer said Monday.
He said officials will go over both the details of the pension legislation and the state's three-year financial projections and try to answer any questions.
"They are two important information points investors need" to have a clear understanding of the state's credit profile," Sinsheimer said.
Bond proceeds will finance projects under the state's ongoing $31 billion Illinois capital program known as Illinois Jobs Now.
Citi is the lead manager with Robert W. Baird & Co. Inc., George K. Baum & Co., and Fifth Third Bank as co-senior managers. Another five firms round out the team as co-managers.
Peralta Garcia Solutions is financial advisor, Chapman and Cutler LLP bond counsel, and Kutak Rock LLP is underwriters counsel.
The firms were chosen from the state's new underwriting, advisory, and legal pools published Monday.
The new pools were chosen after a request for proposals undertaken last year. In the most notable change, Mayer Brown LLP lost out to Chapman in the scoring competition to serve as the state's sole bond counsel.
Quinn signed in early December a pension overhaul that ended two years of political bickering over how to stabilize the state's floundering system that carries $100.5 billion of unfunded liabilities and is just 40% funded. The pension drove the deterioration of the state state's credit ratings to be the weakest among states at the low-single-A level.
Fitch Ratings and Moody's Investors Service assign a negative outlook. Both called passage of the pension reforms a credit positive last month but did not alter the state's rating or outlook as they await final actuarial figures on the reforms' impact. Standard & Poor's recently changed its outlook to "developing" from negative.
The state has released actuarial results from several of the funds, but is awaiting final figures from others to compile the overall estimated savings. Quinn's administration was careful not to attach savings estimates to the legislation and did not include any in the offering statement on a $350 million GO issue sold days after passage of the reforms.
Any preliminary figures likely would draw the scrutiny of regulators. The state last spring settled an SEC charge of securities fraud for misleading investors on the financial risks posed by its pension funding plan on sales between 2005 and 2009 under a prior administration. The state and SEC settled the charge without fine or penalty.
The state expects to have "a clearer idea" of the fiscal impact of the legislation by the time it meets with investors, Sinsheimer said Monday.
Legislative backers say the plan will trim $160 billion off scheduled payments to the system, about $21 billion from $100.5 billion of unfunded liabilities, and as much as $1.5 billion off upcoming annual state contributions. At least three lawsuits have been filed seeking to void the reforms on the premise they violate the state constitution protections of pension benefits. The state's latest three-year forecast with estimates from the pension funds put the savings in fiscal 2016 at about $756 million although the state is awaiting a final assessment by the teachers' fund.
Investors rewarded the state for the passage of the reforms by reducing Illinois' typical interest rate penalty on a taxable GO sale last month. The state paid a 175 basis point spread to Treasuries on its 25-year taxable bond last month compared to a spread of 241 basis points on a similar April sale.
While the courts sort out the legal challenge to the pension legislation, the state also faces questions from investors and analysts over revenue projections that show a deep hit looms in the coming years as a temporary 2011 income tax hike expires beginning next year.
Sinsheimer declined to comment on how the state will address the tax question with investors. Quinn has not taken a position on extending or making permanent the tax increase as his focus over the last two years has been on stabilizing the pension system.
The Quinn administration's three year forecast warns of a $4 billion deficit looming in fiscal 2016 as the tax increase sunsets.
According to its own financial projections, Illinois is on track to see its backlog of unpaid bills grow as high as $16 billion from its current $5 billion unless it finds new revenue or cuts spending. On Jan. 1, 2015 the individual tax rate will drop to 3.75% from 5% and the corporate rate will fall to 5.25% from 7%.
The state's bill backlog - which is a reflection of its structural budget imbalance - and looming tax hike expiration are cited by rating agencies as primary credit concerns despite the pension overhaul.