CHICAGO - After it wraps a $402 million sales tax-backed deal slated for Tuesday, Illinois expects to return to the market in the spring with up to $1 billion of general obligation borrowing.
The upcoming $1 billion of GO borrowing - planned in two separate transactions - along with proceeds of Thursday's issue and the state's $1 billion GO sale last month should cover the state's 2014 funding needs for its ongoing $31 billion capital programf, according to state capital markets director John Sinsheimer.
"We will evaluate at the end of the year if we need a cleanup issue as we did last year but at this point we are not anticipating one," Sinsheimer said.
The GO borrowing will be completed in two separate transactions, one negotiated and one competitive, due to state law governing the amount of annual borrowing that must done through competitive bidding.
The state anticipates issuing up to $1 billion during April or possibly May but the overall size is not final, Sinsheimer said.
The team on the negotiated issue has not yet been announced.
Illinois earlier this year announced new qualified lists of underwriting and financial advisory pools to draw from for its deals and selected Chapman and Cutler LLP as bond counsel.
The top scoring 15 firms were placed in a senior manager pool. Citi served as senior manager on the February GO issue.
The order of senior managers is Citi, Wells Fargo Securities, William Blair & Co., JPMorgan, Barclays Capital, Morgan Stanley, PNC Capital Markets LLC, Bank of America Merrill Lynch, Jefferies & Co., RBC Capital Markets, Loop Capital Markets LLC, Stifel, BMO Capital Markets, Goldman Sachs, and Raymond James.
Proceeds fund projects and grants authorized in the $31 billion Illinois Jobs Now program approved in 2009.
The program relies on roughly $14 billion to $16 billion of borrowing, with the balance funded through federal support and on a pay-as-you-go basis.
The state will have sold between $8 billion to $9 billion for the program once it completes its planned sales, Sinsheimer said.
Tuesday's competitive pricing of senior lien sales tax-backed bonds is being done on a taxable basis because some of the projects and grants it will fund don't qualify for tax-exempt financing, Sinsheimer said.
Columbia Capital Management LLC is advising the state on the 25-year issue. Chapman and Charity & Associates PC are bond counsel. Bidders have the option to designate up to two term bonds.
The bonds carry a AAA rating from Standard & Poor's and a AA-plus rating from Fitch Ratings due to strong coverage of the pledged sales taxes.
While the sales tax-backed bonds typically have been subject to some interest rate penalty for the Illinois name, the high ratings shield them from the steeper penalties investors impose on the state's stressed GO paper, which is rated in the low single-A category.
The state drew 11 bids and paid a true interest cost of 3.286% on a new money taxable sales tax-backed issue in May 2013. The 10-year maturity yielded 80 basis points over the 10-year Treasury rate.
On the state's GOs, Fitch and Moody's Investors Service assign a negative outlook. Standard & Poor's revised its outlook to developing after lawmakers passed a sweeping pension overhaul expected to trim $145 billion off state payments over the next three decades.
Any positive movement in the state's GO rating likely awaits the resolution of litigation challenging the reforms and decisions on how the state intends to deal with the partial expiration of an income tax hike scheduled to take effect Jan. 1
Gov. Pat Quinn has not taken a position on whether the tax should be extended or made permanent or how the revenue could be replaced absent deep cuts. He will unveil his fiscal 2015 budget later this month.
The state's three-year budget projection puts total general fund revenues in fiscal 2015 at $35.2 billion, down from an estimated $36.4 billion this year.
The House last week and the Senate on Thursday adopted a fiscal 2015 revenue estimate of $34.5 billion, down sharply from the governor's estimate. Senate leaders have warned of a $3 billion deficit due to a $1.6 billion drop in revenues and required increases for non-discretionary spending.
Some have argued the deficit is inflated because it doesn't account for a surplus expected this year. The state expects still to carry more than $5 billion in bills over into the next fiscal year.
