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The
state will sell the remaining $4.5 billion of general obligation
bonds through a team of underwriters next week. Proceeds are
earmarked for paying off a huge pile of overdue bills from
vendors and service providers that are accruing late payment
penalties of as much as 12 percent a year.
The three-part debt sale resulted in an overall borrowing cost
of 3.5 percent, according to Governor Bruce Rauner's office.
“The state received strong bids today for its bonds and is
pleased with the market’s favorable reception of the sale,”
Scott Harry, Illinois' budget director, said in a statement.
“This bodes well for the state’s financing coming next week.”
The yield penalty the market assigns to the lowest-rated U.S.
state for its short-term bonds eased considerably in Tuesday's
pricing, while the penalty for 12-year bonds largely stayed
intact.
In competitive bidding, Bank of America Merrill Lynch won $500
million of bonds due in 2018 that were "aggressively" priced
with a 1.64 percent yield, said Greg Saulnier, a Municipal
Market Data analyst. That yield narrowed Illinois' spread over
MMD's benchmark triple-A yield curve to 70 basis points from 100
basis points ahead of the sale.
J.P. Morgan Securities won $500 million of 2019 bonds with a
1.70 percent yield that dropped the spread to 69 basis points
from 125 basis points on Monday.
BofA also won $500 million of bonds due in 2029 with a yield of
3.78 percent, which slightly increased the spread over the scale
to 165 basis points from 163 basis points, according to MMD, a
unit of Thomson Reuters.
"Overall the bonds priced pretty good," Saulnier said.
The state received nine bids for each $500 million series of
bonds, which carry 5 percent coupons, according to the
governor's statement.
An impasse between Illinois' Republican governor and Democrats
who control the legislature left the state without complete
budgets for two fiscal years and ballooned the bill backlog to a
record $16 billion.
The legislature in July enacted a fiscal 2018 budget that
included the bond authorization, as well as an income tax hike
over Rauner's vetoes.
The action helped Illinois avoid credit rating downgrades that
would have made it the first state to fall into the junk level.
(Reporting by Karen Pierog; Editing by Matthew Lewis)
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