Illinois to auction $1 billion of notes for deficit financing
Illinois plans to borrow $1 billion today and an additional $1.25 billion in June to cover a backlog of bills with debt that will be paid off next fiscal year. It is the state's first such short-term deficit financing since 2004.
Illinois will take interest-cost bids from investment banks for $500 million of notes due April 2010 and another $500 million due May 2010. Fitch Ratings gave the general obligation certificates its second-highest short-term rating of F1 yesterday, which may hurt demand from money-market funds seeking only top-grade notes and raise borrowing costs.
Governor Pat Quinn, a Democrat who took over in January after Rod Blagojevich's impeachment, is borrowing as part of a broader plan under debate to close an estimated $11.6 billion state budget deficit for the balance of the fiscal year that ends June 30 and the one beginning July 1, according to Fitch.
"In the fiscal year 2010 budget, Governor Quinn highlighted the need for the state to pay its bills on time," Marcelyn Love, spokeswoman for the Illinois Governor's Office of Management and Budget, said in an interview from Springfield. "This deal is one way we're helping to address this issue."
Illinois last tapped the short-term, fixed-rate note market in December 2008 with a $1.4 billion deal that offered yields as high as 4 percent, four times the rate on a Bloomberg index of top-quality, six-month municipal debt at the time. The last of those notes mature June 24, before the end of this fiscal year.
The Bond Buyer weekly index of one-year notes with Moody's Investors Service's highest short-term rating of MIG 1 was 0.59 percent last week, down from a 12-month average of 1.37 percent. The certificates Illinois issued in December got Standard & Poor's top rating of SP-1+ and the second-highest Moody's grade of MIG 2.
Without Illinois's proposed $2.25 billion in deficit borrowing, the state would end fiscal 2009 with more than $3 billion in accounts payable, according to the Fitch report from Karen Krop and Richard Raphael yesterday.
"Proceeds of the borrowing will be used to pay bills to community organizations and vendors during this current fiscal crisis," Love said. Quinn expects to have a budget agreement with lawmakers for next fiscal year by the end of May, she said.
Boston leads municipal issuers set to take competitive bids on long-term bonds today, with a $31.6 million general obligation sale to refinance debt issued in 2001 through 2003.
States and local governments have sold at least $5 billion of fixed-rate bonds this week, including almost $1 billion of federally subsidized taxable Build America Bonds, according to data compiled by Bloomberg.
Yields on top-rated traditional municipal bonds due in 30 years slid two basis points, or 0.02 percentage point, to 5.01 percent, matching the level last reached April 23, according to a daily survey from Municipal Market Advisors, a Concord, Massachusetts-based research firm.