Junk-rated Chicago school system seeks $1
billion bond sales
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[October 25, 2016]
CHICAGO (Reuters) - The junk-rated
Chicago Public Schools will be selling up to $1 billion of new and
refunding bonds pending approval of its governing board later this week.
The nation's third-largest public school system wants to issue up to
$840 million of general obligation bonds to fund capital improvements
using a $45 million property tax hike approved by the Chicago City
Council last year. The district also seeks to refund up to $160 million
of older bonds, according to the agenda released on Monday for the
Chicago Board of Education's Wednesday meeting.
The school board, appointed by Chicago Mayor Rahm Emanuel, gave initial
approval in August to the sale of $945 million of new money bonds.
CPS is struggling with escalating pension payments that will jump to
about $720 million this fiscal year from $676 million in fiscal 2016, as
well as drained reserves and debt dependency. As a result, the
district's credit ratings have fallen deeper into the junk category,
most recently with a downgrade from Moody's Investors Service.
The muni market has demanded fat yields for CPS debt. Even a private
sale of $150 million of 30-year GO bonds by CPS in July to J.P. Morgan
came at a 7.25 percent yield, which was 513 basis points over the yield
for AAA-rated bonds on Municipal Market Data's (MMD) benchmark scale.
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In the most recent secondary market trading of the bonds, the spread
narrowed to a still-sizeable 374 basis points over the scale, according
to MMD.
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Meanwhile, uncertainties lurk for CPS. A proposed four-year contract
that averted a teachers' strike earlier this month must still be
ratified by the entire Chicago Teachers Union. New money for
classrooms under the tentative deal will flow from surplus property
taxes generated by city economic development districts, a
nonrecurring revenue source.
![](http://archives.lincolndailynews.com/2016/Oct/25/images/ads/current/christian_village_sda_031616.png)
The school district's $5.46 billion operating budget includes a
one-time, $215 million state of Illinois pension contribution that
is contingent on the legislature's passage of major state-wide
pension reforms by January.
The district on Friday released enrollment figures showing 381,349
students, a drop of nearly 11,000 from the 2015-16 school year.
(Reporting by Karen Pierog; Editing by Matthew Lewis)
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