Illinois will sell $500 million of new money and refunding bonds under its sales-tax-backed Build Illinois program in the state’s first primary outing since a trifecta of positive rating actions.
The financings will raise $340 million of new money for capital projects and refund $160 million of debt for present value savings, Gov. J.B. Pritzker’s administration said Friday.
The state will competitively sell $130 million of tax-exempt new money bonds on Aug. 24 and follow up in mid-September with a $210 million taxable new money series and $160 million tax-exempt refunding series.
State debt rules require a certain percentage of bonds issued in any fiscal year be sold competitively so the first deal of the fiscal year is typically competitive to meet that threshold.
Ramirez & Co. and Loop Capital Markets LLC — both majority minority firms — will be joint senior managers for the second pricing.
The bonds carry a BBB-plus rating and positive outlook from Fitch Ratings, affirmed Friday. S&P Global Ratings rates the bonds BBB-plus with a stable outlook.
Fitch caps the rating at two notches above the state's general obligation rating of BBB-minus. S&P caps the rating at one notch above the state, which it rates BBB.
Kroll Bond Rating Agency rates the Build Illinois bonds AA-plus with a stable outlook. It's rating on the sales tax bonds stands alone, without a GO link.
The deal won’t carry a Moody’s Investors Service rating but it rates the Build Illinois credit at Baa2 with a stable outlook, the same as the state’s general obligation rating due to the lack of separation of sales tax revenue from general state operating needs.
The state has $1.9 billion of outstanding senior- and junior-lien sales tax debt outstanding. Illinois levies a 6.25% sales and use tax with 80% of total collections for state use and 20% sent to local governments.
S&P said the rating benefits a deep and diverse statewide economic base and above-average income levels supporting sales tax collections; very strong debt service coverage; and a strong credit structure that it believes largely insulates bondholders from economic and revenue volatility and additional bonds test requirement.
"The stable outlook reflects the demonstrated sales tax resilience and the expected strength of the state's liquidity position, continued economic recovery, and regular revenue and expenditure reporting and budgetary control usage," said S&P analyst Geoff Buswick in a report on the deal published Friday. The sales tax bonds would support a higher rating if they weren't linked to the GO.
Build Illinois bonds have typically priced at narrower spreads than Illinois GOs, given the stronger ratings and strong coverage ratios, and have narrowed over the last year like the GOs, benefitting from healthy demand for high-yield paper and the state’s improving pandemic recovery, traders said.
The state last sold Build Illinois bonds in 2018.
One 10-year bond in the deal, which was boosted by Build America Mutual insurance, landed at a 75 basis point spread to the Municipal Market Data’s AAA benchmark and has been trading at a 45 bp spread, according to Refinitiv MMD. An uninsured 10-year landed at an 89 bp spread and recently traded at a 47 bp spread.
The state’s 10-year GO is trading at a 58 basis point spread to the AAA benchmark and the yield of 1.46% is three basis point narrower than the BBB benchmark. The state’s GOs started the year at a 197 bp spread. The state’s 10-year in a March outing landed at a 120 bp spread to the AAA.
