(Adds credit spread comparisons, comments from Chicago CFO and
portfolio manager, upcoming Illinois bond sale)
CHICAGO Jan 12 Chicago continued to pay a hefty
penalty in the U.S. municipal market on Tuesday for its budget
and pension woes with the city's $500 million bond issue priced
with a top yield of 4.875 percent.
That yield for bonds due in 2038 with a 5 percent coupon is
229 basis points over Municipal Market Data's benchmark scale
for AAA-rated debt. The city's so-called credit spread over the
scale narrowed since a July bond sale, which resulted in a 252
basis-point spread for bonds due in 2039.
Underwriters led by Citigroup on Tuesday repriced the
general obligation bonds with lower yields in several
maturities, with the 2038 yield falling to 4.875 percent from an
initial 4.93 percent and Monday's premarketing level of 4.95
Chicago Chief Financial Officer Carole Brown told reporters
that the deal, which resulted in an overall 4.5 percent interest
rate, attracted 2.5 to 3 times more orders than there were
"They definitely found the demand they needed," said Dan
Solender, lead municipal portfolio manager at Lord Abbett. He
added that the bonds' pricing reflects market concerns over how
the third-largest U.S. city will solve its fiscal problems.
While the Chicago City Council passed a phased-in, $543
million property hike in October to pay for pensions, Illinois
legislative fixes to further address the city's $20 billion
unfunded pension liability remain up in the air.
The city's outsized pension burden led Moody's Investors Service
to drop Chicago's credit rating to "junk" last year.
The city's credit spreads are wider than Illinois' 170
basis-point spread. Illinois, which has the lowest credit rating
and worst-funded pensions among the 50 states, and is in the
midst of a political standoff that has left it without a budget
six months into fiscal 2016, is slated to sell $480 million of
GO bonds on Thursday.
Chicago's deal refunded $280 million of bonds for a present
value savings of $14 million and restructured $220 million of
bonds to push out debt service payments to free up revenue for
the city's cash-strapped budget. Mayor Rahm Emanuel has called
for ending bond restructurings by 2019.
The city council on Wednesday will take up the mayor's plan
to sell more than $2 billion of new and refunding bonds to raise
funds for capital projects and rid the city's debt portfolio of
variable rate bonds.
(Reporting by Karen Pierog; Editing by Matthew Lewis)