Illinois hires a new debt manager

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Illinois’ search for a new debt manager ended with the hiring of Paul Chatalas, a 25-year veteran of public policy and public finance positions.

Chatalas started Tuesday, according to the Governor’s Office of Management and Budget. He replaces Kelly Hutchinson, who left in the spring after three-and-a-half years in the position to join Katten Muchin Rosenman LLP as an attorney.

“We are delighted that Paul Chatalas has agreed to join the Governor’s Office of Management and Budget as Director of Capital Markets. Paul has more than 25 years of combined public policy and public finance experience, most recently as a managing director in U.S. Bancorp’s Municipal Products Group,” GOMB said in a statement.

Chatalas’ past public finance experience includes a banking post at UBS in New York. He holds a Master of Public Administration from Columbia University's School of International and Public Affairs. He also spent several years working on Capitol Hill for members of the U.S. House and Senate, including members of the Budget and Appropriations committees. He will be based in Chicago.

Chatalas is taking over debt management as the state prepares to ramp up borrowing in the coming years to fund a new six-year, $45 billion capital program approved by lawmakers during their spring session and signed into law by Gov. J.B. Pritzker.

Bonds for Rebuild Illinois will be issued over six to eight years depending on the cash flow needs of the construction projects. The plan relies on nearly $21 billion in borrowing, $10 billion in federal funds, $11 billion in pay-as-you-go financing, and $2.6 billion in local matching funds.

“There are sufficient funds available now for early costs of the Rebuild Illinois program. We would expect to issue capital bonds this year, but will work with the construction agencies,” GOMB spokeswoman Carol Knowles said earlier this summer.

The fiscal 2020 budget authorizes $1.2 billion in general obligation bonds to pay down the oldest bills in the state's more than $6 billion backlog of overdue bills.

“The size and timing of the issuance will depend on cash flow needs at the comptroller’s office,” the state has said.

The deal had been planned for early to mid-summer, but was pushed off due to the pending lawsuit filed by the head of a conservative think tank and New York-based hedge fund that seeks to invalidate $14.3 billion of outstanding general obligation bonds, according to banking, financial advisory, and buyside sources. Illinois is fighting the effort and a hearing is set for Thursday over whether it should be allowed to proceed as a taxpayer action lawsuit.

State spreads had shrunk to a three-year low in May, but since the early July filing they’ve widened by about 35 basis points in the secondary making it likely that investors would also demand higher interest rates on any new offering until the lawsuit is resolved.

The state sold $1.7 billion in 2018, $6.3 billion in 2017 including the $6 billion backlog borrowing, $3.4 billion in 2016, nothing in 2015, $2.4 billion in 2014 and $3.4 billion in 2013.

Illinois is rated one notch above a junk rating by Moody’s Investors Service and S&P Global Ratings. Both assign a stable outlook. Fitch Ratings has the state two notches above junk and recently revised its outlook to stable from negative.

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