– by Robert Crump

The City of Chicago is scheduled to issue $346 million in General Obligation (GO) Bonds this week. The Refunding Series 2020A is a negotiated sale with J.P. Morgan as lead managers and a pricing date of January 15th. Series 2020A Bonds have a fixed rate with an amortization schedule between 2021-2030. Proceeds from the sale of the Bonds will be used to refinance certain GO debt (excluding designated TIF bonds), refund portions of the Modern Schools GO Bonds, and pay capitalized interest on the Bonds.

About the Bonds

The Bonds are direct and general obligations of the City. All taxable property in the City is subject to the levy of ad valorem taxes to pay principal and interest on the Bonds without limitation as to rate or amount. To secure repayment of the Bonds, the City will enter into an indenture in which the City will establish a Bond Fund specific to the 2020A Series. Funds collected from the tax levy will be deposited into the Bond Fund in an amount sufficient to satisfy the principal and interest. Further, the City covenants that, until all of the 2020A Bonds have first been fully paid, Bond Property Tax Levy shall not be used for any purpose other than the payment of the Bonds, including redemption prices.

Pending the use of moneys held in the Bond Fund, the Trustee shall invest such moneys in upon the direction of the Chief Financial Officer. Income from such investments shall be credited to the account within the Bond Fund from which investment was made. By pledging its full faith and credit, the City is obligated to appropriate amounts sufficient to repay the Bonds subject to the amortization schedule specified in the bond prospectus. If the revenues raised by the Bond Property Tax Levy are not available in time to make any payments when due, the City is directed to make such payments from any other moneys, revenues, receipts, income, assets or funds of the City that are legally available for that purpose.

The Bonds are subject to optional redemption by the City as specified in the prospectus. Bond Counsel are of the opinion that interest on the Bonds exempt from federal income tax, provided continued compliance measures related to the use and investment of the proceeds, the payment of certain amounts to the United States, the security and source of payment, and the use of the property financed with the proceeds Bonds. Interest on the Bonds is not exempt from present Illinois income taxes.

Ratings on the Series 2020A Bonds are as follows;
S&P: BBB+ (stable), Fitch: BBB- (stable), Kroll: A (stable).

Mayor’s Key Initiatives

Despite Chicago’s junk status credit rating, The Windy City remains a regional anchor for economic activity and investment. Mayor Lori Lightfoot’s administration seems determined to move towards financial stabilization such as seeking new sources of tax revenue like a casino within the city. In June of last year, the City announced the elimination or reduction of $1.4 billion in short-term lines of credit and commercial paper facilities. The City has also begun to develop internal cash flow forecasting to improve its ability to determine when future borrowing is necessary. As a preliminary result of this improved cash-flow forecasting, $600 million in short-term borrowing facilities were eliminated at O’Hare and $810 million eliminated or reduced for the Corporate Fund (the City’s operating fund), saving the Corporate Fund $16 million in interest and bank fees in 2019 and 2020.

More details about the Mayor’s priorities and initiatives can be found on the preliminary official statement found on MuniOS. Readers are encouraged to read Chicago’s 2020 budget. Also of interest is another large bond issuance from the Sales Tax Securitization Corporation also happening this week. Below is a snapshot of Chicago’s financial condition:

Provided above is a quick snapshot of financial characteristics of the City of Chicago, courtesy of Merritt Research Services, LLC. (Merritt believes the data to be reliable but does not make any representations as to its accuracy or completeness). In addition to the Merritt information related to the featured bond, more information can be found on our municipal bond calendar, city, state, and county pages.

These facts and numbers are for informational purposes, and should not be considered an official disclosure for potential investors. Investors should consult the official statement. None of the information provided should be construed as a recommendation by MuniNet Guide, MuniNet LLC, Merritt Research Services LLC, or any of their employees. Information and analysis is for informational purposes only.

Potential investors should rely only on the official documents and figures provided in the official statement (prospectus). Although the numbers presented in this summary are primarily derived from public documents, including issuer audits, issuer reports and other public sources such as federal reporting agencies , they are not intended to replace official information presented in connection with the bond sale. Medians may differ from official sales documents due to methodology or survey base variances.