(Adds comments from market participant, governor's spokeswoman,
CHICAGO Oct 13 With Illinois' political and
fiscal problems showing no sign of abating, investors on
Thursday demanded fat yields for the low-rated state's $1.3
billion of general obligation refunding bonds.
The state's so-called credit spread over Municipal Market
Data's benchmark triple-A yield scale widened from 162 basis
points before the sale to 200 basis points for bonds due in 10
years, according to MMD, a unit of Thomson Reuters.
The wider spread indicates growing investor unease over
Illinois' ability to pass a balanced budget and address its huge
unfunded pension liability.
Dan Heckman, national investment consultant at US Bank,
which did not purchase any of the bonds, said the municipal
market is telling Illinois, "You need to get your act together."
"This is a very large deal and the market to a degree is
running out of patience," he said, adding that the pricing
signals it is time for Illinois "to get past the stand-still on
Illinois, the lowest-rated U.S. state, is limping through
its second straight year without a complete budget. A political
impasse, along with a $111 billion unfunded pension liability
and a growing pile of unpaid bills, have pounded Illinois'
credit ratings into the low investment-grade level of triple-B.
Republican Governor Bruce Rauner told reporters in
Springfield, Illinois, on Thursday that he was "cautiously
optimistic" the Democrat-controlled legislature would take up
key issues such as pensions after the Nov. 8 election.
The refunding of outstanding bonds to take advantage of
lower market rates resulted in a present value savings of $106
million, according to Rauner's office.
"Today's bond sale shows public finance investors continue
to see long-term potential in Illinois," said Rauner spokeswoman
Catherine Kelly in a statement.
Despite a repricing by underwriters led by Bank of America
Merrill Lynch, yields in most maturities of the bond issue did
not budge from preliminary pricing levels. Bonds due in 2026
were priced to yield 3.63 percent with a 5 percent coupon.
The deal's longest maturities - 2030 through 2032 - were
insured by municipal bond insurer AGM, which is rated A2 by
Moody's Investors Service and AA by S&P.
Ahead of the sale, Illinois warned potential bond buyers
that the state's ongoing cash crunch could delay pension
payments. It also reported progress in reducing
risks related to $600 million of variable-rate bonds.
(Reporting by Karen Pierog; Editing by Matthew Lewis)