Courtesy of Mish.
Today a $295.7 million bond offering by the beleaguered Chicago Board of Education hit the market.
The Yield Hit 5.63%. That is 285 basis points higher than Municipal Market Data’s benchmark triple-A scale.
Debate Over Risk
Municipal Market Analytics (MMA) says Despite it All, Chicago Schools’ Default Risk is Low.
Peel away the layers of negative headlines and patient investors will find low default risks and underlying credit strength in this week’s $300 million Chicago Board of Education deal, according to Municipal Market Analytics.
“BOE debt is well insulated from default risk by significant ‘belt and suspenders’ protections,” MMA wrote in a market piece authored by Matt Posner & Kevin McGuigan Friday. “We understand that negative headlines, downgrades and Chapter 9 speculation have all damaged value but believe the case can be made for a considerable underlying credit strength that exists for patient investors.”
The bonds’ value has been hurt by a stinging series of negative headlines, from multi-notch bond rating downgrades to Gov. Bruce Rauner’s comments that no state bailout looms and bankruptcy is an option.
“Regardless of statements by the governor, Chapter 9 is likely a low probability outcome, allowing for a less cynical reading of CPS’ otherwise strong pledged security,” MMA wrote Monday in its weekly outlook authored by Matt Fabian, Lisa Washburn, and Bob Donahue.
“This security presents only minimal payment default risk,” Monday’s outlook piece said.
Debate Over Risk
I strongly disagree the MMA’s assessment. While it’s true that municipal bankruptcies are rare, the odds of this deal working out well are poor.
The only saving grace at the moment is that Illinois does not allow municipal bankruptcies.
And Rauner pledged “The taxpayers of Illinois are not going to bail out the city of Chicago, that ain’t happenin. But there are things we can do to help them restructure and get their government and their schools turned around, and I’d like to help them.“….
