Gov. Bruce Rauner plans to sell $6 billion of bonds to chip away at a $15 billion bill backlog, which would mark the Illinois' largest borrowing in more than 14 years.
Illinois bonds have rallied since the passage of a budget eliminated the risk that the state would soon be cut to junk. The deal may serve as a test for how investors view Illinois's credit now that it's ended a record budget impasse that wrecked havoc on the state's finances.
The borrowing will be Illinois's first public debt sale since October, and if sold in a single offering, would mark its largest bond sale since a $10 billion deal in June 2003, according to data compiled by Bloomberg.
The plan comes two months after lawmakers authorized the borrowing in a spending package enacted July 6 over Rauner's veto. Illinois's bill backlog grew to a record during the unprecedented two-year budget impasse and is costing an estimated $2 million a day in late payment interest penalties, according to the controller's office.
Thousands of service providers and businesses are awaiting payment from the state, according to Comptroller Susana Mendoza, a Democrat who has urged Rauner to move quickly on the bonding.
"We're choosing to exercise borrowing authority because it's better to have Wall Street carry our debt than Main Street," Rauner said in an emailed statement on Thursday.
Illinois could save money if it borrows to pay down the unpaid bills, according to S & P Global Ratings. The budget package for the year that started July 1 estimates an operating surplus of about $360 million, enough to cover debt service on about $3 billion of GO bonds with a 12-year maturity, according to S & P, which cited legislative sponsors of the bill. The bonds must be sold by Dec. 31, according to the legislation.
It would be "wise" to do the borrowing sooner rather than later, according to Dennis Derby, a portfolio manager at Wells Fargo Asset Management, which holds Illinois bonds among its $40 billion of municipal debt. "It would save their constituents additional interest costs," he said in an interview on Wednesday. "That's tax revenue that could be used for something else."