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State delays $1.2 billion bond sale

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Illinois delayed the planned auction of $1.2 billion of short-term debt as it faces record-high penalties to borrow on Wall Street because of the deep financial hit the state is being dealt by the coronavirus shutdown.

The worst-rated state had planned to sell about $1.2 billion of short-term tax-exempt general-obligation debt on Wednesday, its first borrowing during the pandemic, to ease the revenue shortfall in the last two months of the fiscal year. The deal has been moved to “day-to-day status,” meaning it will be sold if market conditions warrant.

With the economic slowdown raising the risk of Illinois having its bonds cut to junk, investors have driven the yields on its two-year debt to nearly 4 percentage points above benchmark, far exceeding every other U.S. state.

The timing of the sale was a little “strange” because there are a lot of short-term unknowns with state finances, said Daniel Solender, head of municipals at Lord Abbett & Co., which owns Illinois debt as part of its $27 billion in municipal assets under management.

“It’s not a complete surprise they delayed it,” he said. “There is the Fed program which hasn’t really been set up yet and states are still waiting on what Congress is going to do.”

This was supposed to be a bridge loan. The state would pay it back within a year.

…Adding… Related…

* County looks at other options besides furloughs: Macon County has just about enough money to last them through the June payroll.

posted by Rich Miller
Tuesday, May 5, 20 @ 12:21 pm

Comments

Just had a 4% private bond renew at 2.67%. State should underwrite it themselves and offer to the general public. The State isn’t set up to do it and it would be a major bookkeeping hassle, but the portion of the public that still has money to invest would snap up decent yielding guaranteed government bonds.

Comment by RNUG Tuesday, May 5, 20 @ 12:36 pm
@RNUG - could the state team up with the Fed to do that? The Fed has talked up offering its borrowing capacity to the state and locals.

Comment by Eloy Tuesday, May 5, 20 @ 12:53 pm
RNUG- yea and Apple gloated a bond at 1 percent. But then again Apple and your borrower probably isn’t rated at 1 step above Junk.

Comment by Sue Tuesday, May 5, 20 @ 12:56 pm
The Fed should do this. At zero interest.

Comment by TinyDancer(FKASue) Tuesday, May 5, 20 @ 1:49 pm
According to Barron’s:
The Fed’s program, called the municipal liquidity facility, can directly buy up to $500 billion in municipal bonds from states, cities with more than one million people, and counties with more than two million people.

Comment by TinyDancer(FKASue) Tuesday, May 5, 20 @ 2:06 pm
Canary in the coal mine?

Comment by Rutger Hauer Tuesday, May 5, 20 @ 2:29 pm
== But then again Apple and your borrower probably isn’t rated at 1 step above Junk. ==

Actually, my bond from a nursing home operator is probably more at risk than anything the State might issue.

Comment by RNUG Tuesday, May 5, 20 @ 2:29 pm
The key section of the article - Illinois’s 10-year penalty over benchmark securities reached a record of 4.4% on Monday… Given the relatively high volume of Illinois bonds being offered, analysts said the state would have had to pay a “larger premium to float new debt”.

If you want another reason for opening up parts of the state, this is a strong one.

Comment by Rutger Hauer Tuesday, May 5, 20 @ 3:41 pm
“Perfect Storm’ Hits Illinois As Revenue Drops $2.74B in April: Report”

https://news.wttw.com/2020/05/05/perfect-storm-hits-illinois-revenue-drops-274b-april-report

Might be why the bond sale has problems. Not enough revenue coming in. Another reason to move faster to open things up .

Comment by earl hickey Tuesday, May 5, 20 @ 5:52 pm

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