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The Chicago Tribune

Feds started probing source of $6M used to fund Harvey library expansion mere weeks after 2015 groundbreaking

The deal set the purchase price at $6,733,740 with a 7.1 percent interest rate, also known as the coupon rate. The library district received more than the $6 million face value of its bond because it issued the security at a premium, meaning it got more money up front, but would have to pay a higher interest rate to investors over time. The 7.1 percent coupon was the highest coupon on any comparable municipal security issued in Illinois that year, according to Bloomberg L.P.

“Having such a high coupon would indicate it’s an outlier in a bad way,” said Matt Fabian, a partner at the municipal bond research firm Municipal Market Analytics. “Sometimes (issuers) will use a high coupon to entice buyers, but that usually stops around 5 percent.”

Lisa Washburn, managing director for Municipal Market Analytics, said that while the bond’s peculiarities raise concerns for her as a credit analyst, there could also be legitimate explanations for its unusual structuring — like Harvey’s reputation.

“The name ‘Harvey’ could mean that buyers demand more yield on that,” she said. ”There could be reasons for all of this.”

In addition to its structuring, the bond’s initial trading activity also may have attracted federal investigators’ attention, Fabian said.

Tim Holler