Illinois sets date for first piece of $6 billion in borrowing

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CHICAGO – Illinois will take competitive bids Oct. 17 on $1.5 billion of general obligation bonds that’s part of $6 billion in planned borrowing to pay down a bill backlog that stood at $15.8 billion Friday.

The remaining $4.5 billion will be sold in a negotiated transaction later in the month. The $1.5 billion is divided into three series each for $500 million, with one series due in November 2018, another in November 2019, and the third in November 2029.

“The state has a significant backlog of unpaid bills resulting in part from the absence of fully enacted general funds budgets for fiscal year 2016 and fiscal year 2017,” the offering statement says.

The state’s fiscal 2018 budget package approved in July authorized the $6 billion in borrowing. It allows for an up to 12-year final maturity with level principal debt repayment so the maturities remaining bonds must fit into those perimeters.

The negotiated piece will mark the state’s largest deal since its $10 billion general obligation sale in 2003 to pay down its unfunded pension liabilities and cover some contributions. It sold other large deals of $3.5 billion in fiscal 2010 and $3.7 billion in fiscal 2011 to cover pension contributions.

The state must sell the first 25% of the deal competitively under state GO statutes.

PFM Financial Advisors LLP and Public Resources Advisory Group are advising the state. Chapman and Cutler LLP and Burke Burns & Pinelli Ltd. are bond counsel.

After initially hesitating to tap the borrowing authority, Gov. Bruce Rauner announced last month the state would proceed as a means to provide relief to vendors facing lengthy delays after a two-year state budget impasse, and to curb interest costs that range from 9% to 12% on some overdue bills.

On the negotiated sale, the joint senior managers named are Barclays Capital, Bank of America Merrill Lynch, Citi, JPMorgan, Loop Capital Markets, and Siebert Cisneros Shank & Co. The state named five firms as co-senior managers and another 13 firms are co-managers.

The state's GOs have been trading at a 175 to 200 basis point spread over the Municipal Market Data's top-rated benchmark. On Friday, the 10-year benchmark was 2.02%.

No ratings updates have been released for the upcoming deal; S&P rates the state’s outstanding GOs BBB-minus with a stable outlook. Moody’s Investors Service rates them at Baa3 with a negative outlook, and Fitch Ratings assigns a BBB with a negative outlook.

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Primary bond market Government finance Sell side State of Illinois Illinois