(Adds statement from school CEO)
CHICAGO, Nov 16 (Reuters) - The junk-rated Chicago Board of Education completed an up-sized bond sale on Thursday at yields that showed the municipal market was easing its penalty on the city’s school system for its deep financial problems.
The bonds were marketed with a message that a new Illinois education funding formula would allow Chicago Public Schools (CPS), the third largest U.S. public school district, to repair its finances.
The new and refunding general obligation bond issue was increased to $1.025 billion from $857.5 million. Yields in the deal topped out at 4.80 percent for bonds due in 2046.
Greg Saulnier, an analyst at Municipal Market Data (MMD), said spreads over MMD’s benchmark triple-A yield scale narrowed to 213 basis points for the deal’s long bonds from around 230 basis points in secondary market trading. The school system was also able to offer lower coupons of 5 percent throughout the deal, he added.
A July bond sale for the Chicago Public Schools (CPS) included heftier 7 percent coupons.
“(CPS) should realize a fair amount of savings from tighter spreads and lower coupons,” Saulnier said.
Escalating pension payments have led to junk credit ratings, drained reserves and debt dependency for CPS.
Forrest Claypool, the district’s chief executive officer, said the refunding portion of the deal would generate $208 million in savings over the life of the bond issue.
“The ripple effects of the hard-fought education funding reform and management improvements continue to help CPS devote more resources to the classroom, and put the district on a much stronger financial footing,” Claypool said in a statement.
The formula, signed into law in August, allocates an additional $450 million to CPS in the current fiscal year from new state money for operations and pensions and a local property tax increase.
On Wednesday, CPS sold nearly $65 million of A-rated capital improvement tax bonds with a top yield of 3.94 percent for bonds due in 2046 with a 5 percent coupon.
Yields in both deals were lowered in repricings through senior underwriter J.P. Morgan Securities. (Reporting by Karen Pierog; Editing by Lisa Shumaker and Richard Chang)