Chicago tweaks finance teams on $1.2 billion refinancing

Chicago is merging the finance teams chosen for separate general obligation and Sales Tax Securitization Corp

deals t

refinance

city debt

to help close

budget gap.

The syndicates and financial advisors will now serve on both transactions, according to information from market sources that city finance spokeswoman Kristen Cabanban confirmed Tuesday. The move makes the investor marketing process for the deals smoother, Caban

an said.

up to $1.2 billion.

Chicago’s chief financial officer

Jennie Huang Bennett

ha

this month or in early 2020. Market sources said they now expect pricings

, but Cabanban said the timing remains as soon as this month.

The merged teams put Goldman Sachs, JPMorgan, Cabrera Capital Markets LLC, and Siebert Williams Shank & Co. LLC in the lead spots. Previously JP

and Cabrera were to lead on the GO deal tentatively sized at about $176 million while Goldman and Siebert had the books on about $1 billion of STSC junior lien bonds.

broker-dealers

putting them on the larger transaction.

“I think it’s better for the marketing effort because you can’t get investors to break the two credits apart so if you are promoting one or the other you are still going to get questions on the other deal as the two credits feed off each other,” said one market source. “I think the city will get better execution from a more integrated marketing effort.”

but only S&P Global Ratings has published its STSC rating on the new junior lien being established with the transaction.

rate the STSC’s senior lien

.

Trading levels on the STSC bonds are around a 100 basis point spread to the Municipal Market Data’s AAA benchmark compared to a 140 bp spread for the Chicago GO, said Daniel Berger, market strategist at MMD-Refinitiv.

“We have not seen any notable Chicago or Sales Tax Securitization Corporation Bond trades of late,” Berger said.

Chicago saw notable spread narrowing in its last GO sale, a $722 million issue that sold in the spring.

The 10-year in the deal paid a yield of 3.59%, a 169 bp spread to the AAA

while the 25-year bond in the deal paid a yield of 4.40%, a 180 bp spread to the AAA. Both offered 5% coupons. The city’s previous deal in early 2017 saw spreads of more than 300 bps.

The city’s last STSC deal in early 2019 used a taxable structure. The last tax-exempt deal for $612 million sold in late 2018. The 10-year in the

deal paid a yield of 3.48%, an 83 basis point spread to the AAA. The 18-year bond in the deal paid a yield of 3.96%, an 88 bp spread to AAA and priced to first optional call date. The 25-year bond in the deal paid a yield of 4.15%, an 88 bp spread to the AAA. All offered 5% coupons.

Chicago has about $8 billion of GOs outstanding and sold $2.6 billion of STSC bonds

through

bankruptcy-remote special entity

was established in 2017 to refund GOs and other debt at lower interest rates.

The city is now issuing $1.2 billion to refinance $1.3 billion of outstanding GO and motor fuel tax bonds with the ability to push the deals up to $1.5 billion under the ordinance approved by the City Council last month.

The city will trade in average coupons of about 4.9% for rates in the range of 3 to 3.5%. The average life of the bonds being refunded is now 10.3 years and will be trimmed slightly to 10 years while one year will be trimmed off the current 2040 final maturity with lower debt service in every year, according to Bennett.

The city will take at least $210 million of the savings upfront, with some limited additional savings in future years. Mayor Lori Lightfoot’s $11.65 billion

on the savings to help close an $800 million gap that due to rising pension, labor, and other costs.

revenue gain but believe it helps lay the groundwork to work toward structural

balance in 2022.

More than 50% of the underwriting team allocations will go to minority- and women-owned firms, one of the highest levels ever.

RBC Capital Markets had been co-senior manager and Loop Capital Markets, Rice Financial Products, and Melvin Securities LLC co-managers on the STSC bonds with PFM and Public Alternative Advisors LLC

as advisors.

Stifel had been the co-senior manager and Estrada Hinojosa, Harvestons Securities, and B

were co-managers on the GOs. Columbia Capital Management LLC and Swap Financial Group were advisors.

The GOs are rated

BBB-minus by Fitch, A by Kroll, and BBB-plus by S&P. All assign a stable outlook. Moody’s affirmed the city’s Ba1 rating, one notch below investment grade, and stable outlook last week, but Chicago does not ask Moody’s to rate new deals.