The state of Illinois will thunder into the primary market this week with a $1 billion sale of general obligation bonds, hoping to feed supply-hungry investors after a sluggish start to the New Year.
Citi plans to price the mammoth deal on Thursday with a structure that includes serial bonds totaling $40 million a year from 2015 to 2034 and a $200 million term in 2039.
The bonds are rated A3 by Moody's Investors Service, and A-minus by both Standard & Poor's and Fitch Ratings. Bond proceeds will finance projects under the state's ongoing $31 billion Illinois capital program known as Illinois Jobs Now.
The deal should command attention due to its sheer size, according to one New York underwriter. It will come a week after Gov. Pat Quinn's state of the state address and ahead of the scheduled release of a fiscal 2015 budget later in February.
"Whenever you have a billion-dollar deal in the municipal market you always have people interested," the New York underwriter said on Friday.
In addition, the state's pre-marketing ahead of the deal, as well as the overall strength of the municipal market lately, should generate demand for the offering.
Officials spoke with investors and ratings agencies about the state's latest financial projections and the impact of its newly adopted pension overhaul during a road show two weeks ago.
Quinn in early December signed pension reform 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 and Moody's say the overhaul is a credit positive but still assign a negative outlook to the deal.
Standard & Poor's recently changed its outlook to "developing" from negative.
Meanwhile, others may look at this week's large deals as an opportunity to take advantage of recent value, the underwriter said.
Even though municipal bond yields climbed last Wednesday, after the Federal Reserve said it would continue tapering its quantitative easing policy by another $10 billion, reducing its monthly stimulus to $65 billion.
On Friday, the 30-year benchmark, triple-A GO bond closed unchanged at 3.85%, according to Municipal Market Data.
Other new issues testing the market this week will include a $733.13 million bond anticipation note deal from the Grand Parkway Transportation Corporation in Texas.
The deal, which will be priced by Goldman, Sachs & Co. on Tuesday, will consist of parkway system subordinate tier toll revenue refunding BANs.
They will have a Dec. 15, 2016, maturity date and are rated SP1-plus by Standard & Poor's.
The San Diego County Regional Airport Authority, meanwhile, will issue $315 million of senior special facilities revenue bonds.
A total of $30.6 million of the financing will be tax-exempt securities that are not subject to the alternative minimum tax, while $284.74 million of the offering will be taxable debt.
Siebert, Brandford Shank & Co. will price the bonds on Wednesday.
In one of the other large deals, the University of Massachusetts Building Authority will sell $315 million of project revenue bonds in a deal to be priced by Barclays Capital Inc. on Wednesday after a retail order period on Tuesday.
The structure includes senior, tax-exempt project revenue bonds, as well as senior taxable bonds, and the bonds are rated Aa2 by Moody's, AA-minus, and AA by Fitch.
