GO deal demonstrates continued demand for Chicago paper
4 min read
Bloomberg News
Chicago is facing a $1.12 billion budget gap, two recent downgrades and scrutiny from the Trump administration that includes threats to its federal funding. But investors didn’t demand to be paid much more last week when the city sold general obligation bonds.
On Wednesday, Loop Capital Markets priced for Chicago $687.3 million of GOs.
Market interest rates are higher, but compared to Chicago’s last GO deal December 5, the benchmark spread on the 10-year maturity barely changed.
In December, Chicago’s 10-year priced at 3.81%, a 108 basis point spread to the triple-A benchmark according to LSEG’s TM3.
The 10-year on the uninsured Series 2025B priced at a 4.44% yield Wednesday, 109 bp over the benchmark.
“Our fundamentals remain strong, driven by economic diversity and deep access to human capital,” the city’s finance team said by email. “We’re also actively addressing our legacy liabilities, continuing the advance pension contribution and working to foster economic growth across the city.”
Howard Cure, partner and director of municipal bond research at Evercore Wealth Management, noted that BAM Mutual insured a portion of the deal.
“It was in a busy week, and it did very well — a lot of the maturities were well oversubscribed,” he said. “They’re pretty wide spreads for a big city GO. They had a portion of this that was insured, so that had tighter spreads because of the insurance.”
BAM wrapped about $84 million in two maturities, the bond insurer said in its
Chicago reported nearly $6.5 billion in orders from more than 90 investors and substantial interest savings on repricing.
The bonds priced to yield from 4.01% for a 2032 maturity in Series B to 5.56% for the longest maturity, the $323.6 million 2050 in Series A, according to TM3 data. The transaction realized a true interest cost of 5.6%, according to the city.
Munis were narrowly mixed on Wednesday amid disappointing economic indicators. But supply was elevated, with $17 billion
For Chicago, Cure said he’s keeping an eye on the budget
“The last budget negotiations did not go well for the mayor as far as getting cooperation from the City Council,” Cure said. “Any indication of them working together better is something that we’d be looking for.”
He’s also watching the reconciliation process in Washington, and whether the state will have to come up with additional monies pending the outcome of Trump’s tax and spending bill. Cuts at the state level could impact the city, he said.
The White House has also threatened to withhold funds to Chicago over its sanctuary city policies and has
Cure acknowledged that the mayor and the president both have incentives to play to their respective bases rather than compromise, but he questioned whether the White House will be able to withhold funds to individual cities.
“That’s where they seem to have (legal) problems, like in Harvard’s case — isolating punishment for an individual institution or government, versus doing it to all entities,” he said. “So far these types of threats haven’t really held up in court much.”
Wednesday’s deal came on the heels of the city’s
“It’s always good to communicate with the investor community, and they’ve been able to do that,” he said.
Chicago will return to market later this month with additional bonds to fund housing and economic development projects.
The key for the city will be staying nimble to capitalize on moments when the market moves in its favor.
The GO bonds that sold Wednesday will fund the city’s capital program and the Chicago Recovery Plan. Proceeds will buy new Chicago Police Department vehicles, resurface streets, create green alleys, repair bridges and viaducts and support aldermanic projects, the city said.
The bonds are part of an $830 million authorization
Ahead of the deal, on May 22 Fitch Ratings
Moody’s Ratings rates Chicago Baa3 with a positive outlook. It
KBRA
