CHICAGO – The Chicago Housing Authority returns to the market after an eight-year break Thursday with $325 million of general obligation bonds to finance its capital program as its nears completion of its 2001 transformation goal.
The deal includes a tax-exempt A series for $100 million and a $225 million taxable B series. The bonds are backed by the CHA’s general obligation pledge payable from legally available funds. The bonds mature in 2038. The agency was taking indications of interest on Wednesday with the pricing for both series set for Thursday.
“The CHA is working from a fully balanced five-year operating and capital budget,” Chief Financial Officer Michael Moran said in a recorded investor presentation. “The five-year plan calls for the CHA to spend approximately $780 million for capital improvements, approximately $300 million” of which is being funded from proceeds of the deal.
The CHA lacks taxing authority but will prefund its debt service payment with monthly payments to the bond trustee so that debt service is fully funded 25 days ahead of its due date. A debt service reserve of maximum annual service will be funded at closing. The deal also capitalizes interests.
The bonds carry AA-minus ratings from Fitch Ratings and S&P Global Ratings.
Cabrera Capital Markets LLC is senior manager with four co-managers. Kutak Rock LLP and Burke Burns & Pinelli Ltd are bond counsel. PFM Financial Advisors LLC and the RSI Group LLC are advising on the deal.
The CHA expects to pay off the bonds from the roughly $100 million in rental revenue its receives from its existing housing stock and from fees it receives as an administrator for the federal Section 8 subsidized housing voucher program. The two sources generate nearly four times coverage as debt service on the new bonds will total about $27 million annually.
Federal funds account for more than 90% of CHA revenue which “has proven to be a very reliable funding source,” Moran said. The CHA has a fully funded pension fund for its more than 1,000 participants and has for at least the last three years contributed an actuarially based payment.
The CHA has little debt. It pioneered the leverage of federal HUD capital funds in a 2001 deal for $300 million and later refunded the debt. It was last in the market in 2010 when it sold $25 million of taxable Build America Bonds under the federal program.
The CHA’s balanced books mark a sea change from the troubles that plagued the agency and led to a federal takeover in 1996.
The U.S. Department of Housing and Urban Development returned the agency, founded in 1937, to city control in 2000. Then Mayor Richard M. Daley announced the Plan for Transformation that called for the demolition of high-rise developments long beset with crime, the rehabilitation of smaller and senior facilities, and the construction of new mixed-income/mixed-finance developments.
The goal was 25,000 new or redeveloped units by 2009. The housing market collapse hurt efforts to find private development partners a decade ago and that pushed back the timeline the CHA was already struggling to meet.
The CHA reported in the presentation that 24,000 units of new or redeveloped units are now complete and it will be close to the 25,000-unit goal by the end of the year.
The current portfolio includes 11,000 family units, 11,000 senior/elderly units and 2,000 supportive housing units. The CHA also administers 47,000 housing vouchers.
Demand is evidenced by the authority's current waiting list of 108,922 Chicago residents in need of low income housing, Fitch said.
The rating also benefits from extremely strong liquidity ratios and a low debt, S&P said. A drag on the credit profile for the nation’s second largest public housing agency is a weak profitability position from losses in recent years compared with CHA’s AA-rated public housing agency peers and susceptibility to year-over-year federal funding levels.
CHA is governed by a 10-member board appointed by the mayor.
