Moody’s upgrade buoys Cook County as it prepares to sell bonds

Cook County, Illinois, plans to go to market Oct. 1 with $150 million of sales tax revenue bonds. The deal comes on the heels of a Moody’s Ratings upgrade to Aa3 from A1 on Thursday. 

The pricing date is firm, barring significant market volatility, Deputy CFO Dean Constantinou said by email.

Moody’s cited “a multi-year track record of improved pension funding and growing reserves, including another likely surplus in fiscal 2025.”

The rating agency also noted the county’s significant revenue flexibility; demonstrated track record of creating new recurring revenue sources and cutting expenditures; and an available fund balance ratio that will likely stay above 25% through fiscal 2027.

The upgrade impacts the county’s issuer and general obligation rating. The rating outlook, previously positive, is stable after the upgrade.

“The county’s leverage ratio will likely remain slightly above peers because of its high pension leverage despite its improved pension contribution practices,” Moody’s said.

“We are incredibly proud of Moody’s decision to upgrade Cook County’s bond rating,” Cook County Board President Toni Preckwinkle said in a statement. “This is another notable recognition of our work creating long-term financial stability for our residents.”

The Series 2025 bonds are rated AAA with a stable outlook by KBRA, which said in a press release that its rating reflects the bonds’ pledged revenues, consisting of home rule sales taxes, which provide robust debt service coverage. 

Fitch Ratings affirmed Cook County’s general obligation and sales tax revenue bonds at AA in July. The outlook is positive.

The tax-exempt, fixed rate Series 2025 bonds will refund outstanding Series 2014D and Series 2018 general obligation bonds, finance the construction or repair of county facilities, fund a portion of the interest on the Series 2025 bonds and pay costs of issuance, according to an investor presentation shared with The Bond Buyer.

Cook County CFO Tanya Anthony said in a statement that receiving multiple upgrades despite numerous financial challenges “is a real testament to the great work of our whole finance team and leadership of President Preckwinkle.”

Constantinou said the county will be looking to approve its capital budget in November, and the freed-up capacity on its revolving line of credit will help finance the development of existing facilities and projects addressing deferred maintenance.

The timing of this transaction stemmed in part from the county’s “unique financing method” set forth in the indentures of the 2014D and 2018 GO bonds, he said. 

“Under this agreement, we hold a $175 million line of credit and as capital expenses are incurred by the county we draw down from the LOC to repay ourselves for those costs,” he said. “Every year, we then issue new bonds to refill the line of credit.”

Decisions about the pro forma debt service structure of the bonds took into account the significant levels of legacy GO debt the county has been working through over the last 10 years, which really starts to taper off at the end of this decade, Constantinou said.

“The county has implemented a policy requiring us to keep total debt service growth to just 2% per year,” he added. “Those are the two main factors for why you see debt service payments in the pro forma level out in the next decade. 

“For this transaction, we have benefited from a longer weighted average economic life than in previous transactions, due in part to the recent development of the county’s Infrastructure and Equipment Fund, a pay-go capital fund, that allows us to use available fund balances from prior years to finance capital expenses with a useful life of five years or less.”

County officials hope that as interest rates lower, they will be able to refund the debt service in the out years by taking advantage of the yield curve, he said.

Principal payments are spread out over the life of the bonds, with the highest principal payments due in 2046, 2047, 2048 and 2049.

Co-senior managers on the deal are Ramirez & Co. and Mesirow. The co-financial advisors on the deal are Columbia Capital Management and RSI Group.