September 22, 2017 / 9:27 PM / 2 years ago

UPDATE 2-Illinois to sell $6.75 bln of bonds by year-end

(Adds bond maturity, Illinois bond yields)

CHICAGO, Sept 22 (Reuters) - Illinois will sell $6 billion of bonds in October to shrink the state’s unpaid bill backlog that hit a record $16 billion this week, the Governor’s Office of Management and Budget said on Friday.

The state also plans to sell up to $750 million of bonds in December to fund capital projects, according to the announcement.

The bill backlog mushroomed during an impasse between Republican Governor Bruce Rauner and Democrats who control the legislature that left the nation’s fifth-largest state without complete budgets for an unprecedented two straight fiscal years.

A fiscal 2018 spending plan lawmakers enacted in July over Rauner’s vetoes included authorization to sell 12-year bonds to pay off bills from vendors and service providers that are accruing late payment penalties of as much as 12 percent.

In October, Illinois will sell $4.5 billion of general obligation bonds through a team of senior underwriters consisting of Barclays Capital, Bank of America Merrill Lynch, Citigroup Capital Markets, J.P. Morgan Securities, Loop Capital Markets, and Siebert Cisneros Shank & Co., the state budget office said.

Another $1.5 billion of GO bonds will be offered in competitive bidding next month, followed by the capital improvement GO bonds in December.

Illinois, which has the lowest credit ratings among the 50 states, evaded downgrades to junk in the wake of the budget enactment and an income tax increase.

Yields on its debt in the U.S. municipal bond market also fell due to the action. The state’s so-called credit spread over Municipal Market Data’s benchmark triple-A yield scale for 10-year bonds has dropped to 175 basis points from a 335 basis-point high in June. Illinois GO bonds due in 12 years were yielding 3.85 percent on Friday, according to MMD.

Illinois’ yearend burst of bond issuance will not be a record for the state, which sold $10 billion of pension bonds in 2003. (Reporting by Karen Pierog; Editing by James Dalgleish and Jonathan Oatis)

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