CHICAGO — An Illinois legislative conference committee tasked with crafting a pension overhaul holds its first public meeting Thursday, one day after Gov. Pat Quinn put a $130 million price tag on penalty the state paid to borrow $1.3 billion this week due to its credit deterioration over the last few years.

While Quinn's statement following the $1.3 billion general obligation pricing Wednesday noted that the state achieved better rates than expected in before the pricing, he sought to keep pressure on lawmakers by highlighting the steep interest penalties he blamed on legislative inaction on pensions.

The state's 25-year maturity yielded 5.65%, 160 basis points over top-rated debt on the Municipal Market Data benchmark, and its uninsured 10-year maturity paid a yield of 4.46%, 164 basis points over MMD. Illinois' last tax-exempt GO sale in April, prior to the latest two rating downgrades, yielded up to 145 basis points over MMD with the spread on the 10-year at 141 basis points.

Quinn's administration put a price tag of $130 million on the added borrowing costs over the 25-year life of the issue due to several rounds of downgrades in recent years. It reached that figure based on a comparison to rates it could have captured if it still carried double-A level ratings.

"Today's bond sale ensures that the work continues on much-needed improvements to roads, bridges and other infrastructure projects across Illinois. But legislative inertia has a price, and today the price for taxpayers was an extra $130 million," Quinn said. "As I've warned repeatedly, this is an emergency. That's why the General Assembly needs to get the job done by July 9 so we can stop the bleeding, prevent future downgrades and jumpstart Illinois' economy."

Proceeds from the sale will finance ongoing projects in the state's $31 billion capital program. Wells Fargo Securities, Siebert Brandford & Shank, and Stifel Nicolaus & Co. Inc. served as the lead managers with Wells running the books.

The conference committee holds its first public meeting Thursday facing a Quinn-imposed July 9th deadline to come up with a plan that break legislative gridlock.

Fitch Ratings and Moody's Investors Service both downgraded Illinois in early June, to A-minus and A3 respectively, after the General Assembly ended its spring session without reforming a system burdened with $95 billion of unfunded obligations. Both assign a negative outlook. Standard & Poor's assigns an A-minus rating and negative outlook.

Some market participants earlier in the week had questioned the wisdom of Illinois sticking with its Wednesday pricing schedule given the market's volatility following a massive selloff that drove municipal bond yields up more than 60 basis points over the previous four trading sessions.

Other issuers backed away, but Illinois' capital markets director, John Sinsheimer, said last Friday the state could not delay the sale given its need for cash to fund "critical" capital projects.

The state headed into a market rally Wednesday that saw market yields down by 20 basis points on the MMD 10-year and 22 basis points on the 30-year. Several market participants said some buyers had positioned themselves to buy the higher yielding Illinois paper.

Illinois received more than $9 billion in bids from 145 investors with $50 million going to retail buyers and it was able to pare between 6 and 14 basis points off yields on some maturities after lowering some by as much as 10 basis points from preliminary marketing levels.

Market participants on Monday had speculated that the state could be forced to pay a steeper 175 to 200 basis points over MMD on its 10 and 25-year maturities due to rising rates, widening credit spreads and worries over the state's fiscal ills.

The state offered retail bonds in its 10, 15, and 20 year maturities. They were all insured by Assured Guaranty Municipal Corp. as was the first serial maturity for $52 million. Some pieces of the state's April GO sale also tapped insurance from Assured.

The bonds captured a true interest cost of 5.042 % up from a TIC of 3.92% on the April tax-exempt sale due to market forces and the state's credit woes.

Moody's pushed Illinois down into the single A category in April 2009 while Fitch did the same in July 2009. Standard & Poor's dropped the state out of the double-A category in December 2009.

Those actions were driven by budget and liquidity struggles that Quinn inherited when he took office in early 2009 and then to the state's heavy reliance on one-shots to balance the fiscal 2010 budget, including borrowing to cover pension payments.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.