Illinois Delays $500 Million Bond Offer After S&P Rating Cut

Wednesday, 30 Jan 2013 12:18 PM

 

Share:
  Comment  |
   Contact Us  |
  Print  
|  A   A  
  Copy Shortlink
Illinois postponed a $500 million offer of general-obligation bonds planned for Wednesday, citing unfavorable market conditions after Standard & Poor’s cut its credit rating last week and threatened to drop the grade again.

Illinois still plans to sell the securities, though it has “no set date,” said John Sinsheimer, the state’s director of capital markets, in a telephone interview. The offer was set to be sold competitively, with banks bidding for the debt, and the state said its decision followed conversations with potential buyers.

“It was straightforward — today is Wednesday, we had ratings actions Friday afternoon,” Sinsheimer said. “When we feel that the market has had the time it needs to digest the news and has settled down, we’ll be back.”

The delay may hinder the school construction and transportation improvements that the sale proceeds would fund. Those projects would join the doctors, hospitals, pharmacists and other vendors who have waited more than six months in some cases for payments from the state. Illinois has $9 billion in unpaid bills.

S&P cited that backlog and Illinois lawmakers’ “poor track record” on fixing the state’s retirement system in reducing its rating Jan. 25 to A-, six levels below AAA. That ties it with California for the lowest state grade in the nation.

The postponement followed two trading days in which interest rates climbed across the $3.7 trillion municipal-debt market, tracking losses in Treasuries. The yield on benchmark tax-exempts due in 10 years touched 1.76 percent yesterday, the highest since Jan. 8, data compiled by Bloomberg show.

Investors will want added compensation on Illinois debt given the jump in yields and the rating action, said Daniel Solender, who helps oversee $19.5 billion in munis at Lord Abbett & Co. in Jersey City, New Jersey.

“When a deal comes and they have to sell this larger amount of bonds, given the headlines and given that we’ve been down for a few days, it leads to discussion of spreads getting wider,” Solender said.

Buyers already demand the highest yield spread on bonds from Illinois among the 19 states tracked by Bloomberg data. Muni investors require an extra 1.4 percentage points above AAA benchmarks to hold debt from the state and its localities, the data show.

The penalty relative to California has risen since Illinois legislators ended their 2012 session Jan. 8 without a pension overhaul, after also failing to act during a special session in August.

Illinois’s state retirement system is the weakest in the U.S., with just 39 percent of assets needed to cover projected obligations for five major groups of public employees, according to the Civic Federation, a Chicago-based nonprofit research group.

© Copyright 2014 Bloomberg News. All rights reserved.

Share:
  Comment  |
   Contact Us  |
  Print  
  Copy Shortlink
Around the Web

Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
 
Email:
Retype Email:
Country
Zip Code:
 
You May Also Like
Around the Web

Most Commented

Newsmax, Moneynews, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, NewsmaxWorld, NewsmaxHealth, are trademarks of Newsmax Media, Inc.

MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved