Illinois Bond Spread Triples After Cut to Lowest-Rated State
January 18, 2012, 9:15 AM ESTBy Brian Chappatta
(Updates with past interest rates in sixth paragraph.)
Jan. 11 (Bloomberg) -- Illinois’s cost to borrow relative to top-rated issuers tripled from 2009 when it sold $800 million of bonds today, after its credit rating was cut by Moody’s Investors Service to the lowest among U.S. states.
The $525 million tax-exempt part of today’s sale included 10-year general-obligation bonds priced to yield 3.1 percent, according to data compiled by Bloomberg. That’s 110 basis points more than the 2 percent yield of top-rated 10-year debt.
A 10-year bond sold on Sept. 16, 2009, the last time Illinois took competitive bids for tax-exempt general obligations, was priced at 37 basis points above top-rated debt. A basis point is 0.01 percentage point.
Moody’s cited “chronic” late bill payments and unfunded retirement obligations when it cut $32 billion of Illinois general-obligation debt one level on Jan. 6 to A2, the sixth- highest rating and the lowest among U.S. states. The pension has assets to cover only 45 percent of projected liabilities, the least of any state, according to a study by Bloomberg Rankings.
The sale benefited from the lowest yields on AAA rated general obligations since at least 1991, Bloomberg data show.
Absolute rates on the tax-exempt sale for capital projects were the lowest for Illinois since at least 1976, according to Kelly Kraft, a spokeswoman for Governor Pat Quinn’s budget office.
“These bond bids make clear that investors know we are taking steps to correct the decades of fiscal mismanagement in our state,” David Vaught, director of the state Office of Management and Budget, said in a statement.
The debt will pay for projects including schools and transportation in the fifth-most-populous U.S. state.
Wells Fargo & Co. beat seven other bidders for the $525 million of tax-exempt bonds. JPMorgan Chase & Co. outbid eight banks for the $275 million of taxable bonds.
--Editors: Jerry Hart, Mark Tannenbaum
To contact the reporter on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net
