Kicking the Can?
- Chicago’s troubled public school system on Wednesday had to slash the size of one of the biggest "junk" bond offerings the municipal market has seen in years and agree to pay interest costs rivaling Puerto Rico’s in order to lure investors into the deal.
The Chicago Board of Education managed to sell only $725 million of an originally planned $795.5 million of tax-exempt bonds, and yields on the deal topped out at 8.5 percent, a massive premium relative to higher-rated debt sold in the U.S. municipal bond market and a clear indication of investors’ view of the depths of the district’s fiscal woes.
Wednesday’s sale came a week after the school system had to pull the deal in its first attempt at an offering amid worry by investors that the district could end up in bankruptcy.
The nation's third-largest public school system has become dependent on borrowing to bolster its budget, which is sinking under escalating pension payments, despite credit ratings that have dropped into the "junk" level.
The 8.5 percent yield for bonds due in 2044 with a 7 percent coupon was slightly below the 8.727 yield for 21-year bonds in the municipal market's last big junk bond sale - a $3.5 billion Puerto Rico issue in March 2014.
This was last week, and they couldn't even sell the complete run, which we suppose is a good thing. Selling three-quarters-of-a-billion in debt that won't be paid off for almost 30 years gives us plenty of time to flee the state and make sure our progeny are far from this ground zero.
Labels: money questions