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Chicago supersizes deal to wrap up securitization program early

“Rather than use its new rating arbitrage vehicle — the Sales Tax Securitization Corp. — to reduce scheduled GO debt service across its existing maturity schedule, Chicago plans to use the proceeds of an upsized $1.3B refunding this week to generate lopsided budget savings in the first 10 years while extending principal maturities by 13 years,” Municipal Market Analytics managing director Lisa Washburn wrote in the firm’s weekly outlook published Monday.

“Investors, rating agencies, and the state should be alarmed that Chicago has so quickly converted STSC from a pure refunding tool into a budget financing mechanism. This is not quite COFINA, but it’s getting closer,” she added, referring to a similar structure used by Puerto Rico that became tangled up in the commonwealth's Title III bankruptcy.

“The optimal use of the STSC is to use its lower cost of funds to generate the maximum savings for the city within the current debt structure,” she said.

Tim Holler