CHICAGO (Reuters) - Illinois paid a smaller penalty for its financial woes on Wednesday, selling 0 million of general obligation (GO) bonds at tighter, but still hefty spreads.
The deal benefited from aggressive bidding by investment banks and yield-hungry investors, according to Daniel Berger, senior market strategist at Municipal Market Data (MMD).
The spread for Illinois bonds due in 10 years over MMD's benchmark triple-A yield scale fell 11 basis points to 150 basis points.
"The penalty eased, but it's still a big penalty," Berger said, noting that Illinois spreads remain the widest among the states.
Illinois also has the lowest credit ratings compared to other states due to its 3.5 billion unfunded pension liability and chronic structural budget deficit.
Bank of America Merrill Lynch (NYSE:BAC) won 0 million of the bonds in competitive bidding, while Barclays (LON:BARC) Capital won the remaining 0 million.
"We were pleased to have entered the market near historic low interest rates and with solid investor demand, and the results reflect a low all-in interest cost that benefits Illinois taxpayers." said Paul Chatalas, Illinois' capital markets director, in a statement.
Proceeds are earmarked in part for a six-year, billion Rebuild Illinois infrastructure program passed earlier this year by the legislature, which also approved new funding from higher fees and taxes and a gambling expansion that includes additional casinos and sports betting.
The bond sale is Illinois' first since a constitutional challenge to some of its outstanding GO bonds was filed in a state court in July. The case is on appeal after it was dismissed in August.
Last month, the governor's budget office released a five-year forecast that showed the state's general fund deficit reaching .2 billion by fiscal 2025 along with an unpaid bill backlog that balloons to .2 billion. The forecast pointed to the state's "unsustainable" tax structure as a culprit. Governor J.B. Pritzker hopes voters will make a major change to the structure next year by adopting a constitutional amendment for graduated income tax rates.
