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Will Anyone Buy Chicago’s $1.2 Billion Bonds?

The city is set to sell a huge $1.2 billion in bonds–the largest sale since 2017.

Chicago bonds shops trying to sell the city’s offering are in the running to earn high fees but are preparing to work extra hard to get them.

The underwriting team–with New York titan Goldman Sachs at its helm–is battling to secure the best price possible on the city’s bonds in a sale process that should have concluded back in December–but which is now running into 2020.

Mayor Lori Lightfoot is now working with Chicago bankers to persuade buyers to pay for the new bonds, which the cash-strapped city will undoubtedly want to use to fund its new $838-million budget.

John Miller, head of municipals in Chicago at big bond investment firm Nuveen told Chicago Business: “I really, really don’t think that the delay has anything to do with the market not being there for Chicago. We can use Chicago bonds at today’s market price.”

Lightfoot’s administration is hoping the bond sale will help the city to refinance its current $10.7 billion in general obligation and sales-tax-backed bonds, while simultaneously reducing its interest outgoings by $200 million.

Jennie Bennett, Chicago’s Chief Financial Officer, said in October 2019: “Instead of looking to one-time measures of the past, we are focused on prudent measures for addressing outstanding debt that will achieve significant near-term savings to the taxpayer without sacrificing the long-term financial health of the city.”

Negotiating sales rather than sending the bond to auction means underwriters can consult with various potential buyers before coming together to decide on the optimal price.

Just a few hours prior to the sale, the underwriters–including Chicago-based Loop Capital Markets and Cabrera Capital Markets–will make the price known.

Martin Cabrera, Cabrera Capital Markets’ CEO and founder ventured: “It’s still competitive pricing because if we don’t get a good price for the city, they’re not going to use any of us.”

Cabrera was understandably not so keen to ‘out’ the finer intricacies of the sale, but suffice to say that his company Cabrera Capital Markets should find itself positioned among the top earners, is expected to net $750,000 from the deal.

Others expected to top the scales include banks Goldman Sachs and JP Morgan Chase, as well as firm Siebert Williams Shank, according to a city document shared with members of the City Council Finance Committee.

Loop Capital and Chicago-based Melvin Securities are each also expected to land $340,000.

Chicago is currently rated below investment grade, which Moody’s Investors Service analyst David Levett puts primarily down to pension challenges. The city is also facing rising costs for a new teachers’ contract and a falling revenue base due to its declining population.

Currently, Chicagoans pay one of the highest sales taxes in the nation at a combined rate of 10.25%, sharing the top spot with Long Beach and Glendale, California.

Its less-than-ideal financial condition makes for a higher interest rate for buyers.

It isn’t all negative news for Chicago, however, as its finances have actually improved over 2019 and the city remains one of the largest economies in the country.

Jane Ridley, an analyst based at S&P Global, said: “There are a lot of things there that continue to draw (in Chicago), so we don’t see it, economically, as a city that’s deteriorating.”

Major companies relocating downtown and an emerging tech corridor are helping to keep the city on the up.

So, now, we have to simply wait and see whether investment firms will bite the bullet and pay up for Chicago’s new bonds.


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