Kroll adds its AAA to Cook County sales tax paper

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CHICAGO — Cook County, Illinois, comes to market Wednesday with two top ratings on its $150 million of sales tax-backed bonds.

S&P Global Ratings affirmed its AAA rating and Kroll Bond Rating Agency issued a first-time rating of AAA. Both assign a stable outlook. S&P rates the county’s general obligation debt at AA-minus and a negative outlook and Kroll does not it.

Loop Capital Markets LLC is running the books with two co-seniors and three co-managers. PFM Financial Advisors LLC and Acacia Financial Group Inc. are advising the county. Ice Miller LLP and Pugh, Jones & Johnson PC are co-bond counsel.

The county, home of Chicago and its neighboring suburbs, will use proceeds to pay off about $125 million currently outstanding in a revolving line of credit with the remainder to finance upcoming projects.

“We fill that up and then refund it and that allows us to borrow short-term debt at a low rate” during construction, Chief Financial Officer Ammar Rizki said of the credit line use in a recent interview.

The final maturity is 2038 with a majority of the debt amortized in second decade.

The county's home rule taxing powers provide it with the flexibility to adjust its sales tax rate. The tax is projected to generate $818 million this year, which provides 22.9 times coverage of maximum annual debt service on all sales tax bonds, which occurs in 2033 when it hits $35.8 million.

The rate was raised to 1.75% from 0.75% in 2016 as the county sought to stabilize its weak pension funding ratios through supplemental payments.

Supplemental pension payments are on schedule with $270.5 million made in 2015, $353.8 million last year, and $353.4 million due this year. The payments are subject to appropriation and made under an agreement with the funds. The county is working to get its system to a 100% funded ratio by 2046.

The funded ratio grew to 60.9% as of December from 56.73% in 2016 “due to two main factors: strong investment performance … and the supplemental contributions,” Rizki said in a recorded investor presentation.

The county must close an $82 million gap in its next roughly $5 billion budget for the next fiscal year that begins Dec. 1. The county's books were strained by the board's vote last year to rescind a tax on sweetened beverages, a move Board President Toni Preckwinkle fought.

“The stable outlook reflects KBRA’s expectation that the county’s home rule sales tax base will continue to grow at a modest pace, there will be no adjustments in the 1.75% sales tax rate, and future sales tax secured borrowing will be undertaken with a view to protecting surplus funds for operations and related purposes, and consequently debt service coverage margins will remain broad,” Kroll said.

The offering statement discloses a potential $247 million threat posed by a March lawsuit filed by the Illinois Road and Transportation Builders Association in Cook County Circuit Court arguing that the funds were collected on transportation-related taxes but were not used on transportation-related expenses.

Voters approved a constitutional amendment in 2016 putting such revenues in a lockbox. The county is seeking dismissal of the case arguing its allocation of the revenue to a public safety funds is legal and the group lacks standing to bring the case.

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Primary bond market Revenue bonds Ratings Cook County Kroll Bond Rating Agency Illinois