Illinois' $750 million bonds won by BofA
with still hefty yields
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[November 30, 2017]
CHICAGO (Reuters) - Bank of America
Merrill Lynch won $750 million of Illinois bonds in competitive bidding
on Wednesday as the state faced a lingering market penalty for its
fiscal and political woes.
Spreads for the general obligation bonds over Municipal Market Data's
benchmark triple-A yield scale tightened by about 2 to 5 basis points
for 10-year and longer bonds in the deal, but widened by 4 to 10 basis
points for some shorter-dated bonds, according to Randy Smolik, MMD's
chief market analyst.
That indicated good performance for Illinois bonds mainly in the 10-year
range compared with where they had been trading in the secondary market,
Market conditions were tough for the two-part bond deal from Illinois,
the lowest-rated U.S. state, as the muni market was hit with a
sixth-straight session of falling prices and higher yields.
For Illinois bonds due in 2042 with a 5 percent coupon and priced with a
4.42 percent yield, the spread was 165 basis points over the benchmark
scale's 2.77 percent yield for top-rated bonds, according to MMD, a unit
of Thomson Reuters.
"It's the widest spread for a state GO bond by far," Smolik said.
An impasse between Illinois' Republican governor and Democrats who
control the legislature left the state without a complete budget for an
unprecedented two fiscal years. Lawmakers enacted a fiscal 2018 budget
and income tax rate hikes in July over Governor Bruce Rauner's vetoes.
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The stalemate ballooned the state's backlog of bills from vendors
and service providers to an all-time high of nearly $16.4 billion,
which was deflated to $9.1 billion as of Wednesday with the help of
proceeds from Illinois' $6 billion GO bond sale in October.
BofA beat seven other bidders on Wednesday with a 4.33 percent
overall interest cost for $655 million of bonds with maturities from
2018 through 2042 to fund capital projects. The bank also won over
nine other bidders $95 million of bonds due in 2018 through 2027 to
finance information technology with a 3.71 percent interest cost,
according to the governor's office.
“We are very pleased with the strong response that the state
received on today’s competitive bids,” Scott Harry, director of the
Governor’s Office of Management and Budget, said in a statement.
Bank of America Merrill Lynch is the corporate and investment
banking division of Bank of America Corp <BAC.N>.
(Reporting by Karen Pierog; Editing by Matthew Lewis)
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