Courtesy of Mish.
Chicago Pays Price to Get the Deal Done
Comparisons on the Bond Buyer in regards to Tuesday’s offerings show Chicago Schools Pay Price to Get Deal Done.
The top yield of 5.63% on a 25-year maturity landed 285 basis points over the Municipal Market Data’s triple-A benchmark.
While the board’s rating remains in investment grade territory, its yields aren’t.
Tuesday’s MMD scale Tuesday put a mid-level, triple-B rated credit at a 3.78% yield on a 2039 maturity, underscoring just how severe a penalty the district paid. The Chicago Board of Education is rated between the BBB-minus level and A-minus.
Secondary trades on the board’s $6 billion of debt jumped 140 basis points in recent weeks with 10-year paper trading around 250 basis points over MMD and 15 year paper trading at 300 basis points over.
The two tranches offered a C series for $275 million and an E series of $20 million in green bonds. Both carried a general obligation pledge plus an alternate revenue pledge of state aid.
The Penalty
Not only did Chicago have to pay a 285 basis point penalty over top rated bonds, it paid 185 basis points over similarly rated bonds even though the bonds contained an alternate pledge of state aid, and even though Illinois law does not “yet” allow bankruptcy.
Why?
Default risk.
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.“.
Illinois taxpayers should commend Rauner for that stance. …
