Deal achieves the tightest spreads for the City in a decade on its GO credit

SWS served as one of four Joint-Senior Managers on the City of Chicago’s General Obligation Series 2020A (Tax-Exempt) & Sales Tax Securitization Corporation 2nd Lien Series 2020A (Tax-Exempt) & B (Taxable) combined $1.5 billion financing.

The proceeds of the Bonds will be used to refund outstanding GO Bonds, including certain outstanding motor fuel tax revenue bonds, select TIF Bonds, pay off the Chicago Infrastructure Trust notes, and fund certain capitalized interest. The plan of finance also included a tender program for a portion of long dated taxable bonds that were not yet currently callable. The City structured the overall issuance of GO and STSC bonds to target refunding savings in fiscal years 2020 and 2021. This transaction represented the inaugural issuance of the 2nd Lien STSC Bonds.

In the weeks leading up to pricing, the City developed both an online presentation as well as 3-city investor roadshow to further assist in its investor outreach. The City held breakfasts / lunches in New York City, Boston and Chicago providing a live forum to explain the City’s fiscal plans and for the investors to ask questions of the Mayor, the CFO and its finance staff. Over 60 investors were in attendance.

The week of pricing had a strong tone with a tremendous amount of cash looking to be put to work as well as interest for the City’s upcoming bond issuances, especially from investors looking for yield. The City and its finance team staggered the pricings, pricing the GO on January 15 and the STSC on January 16. This strategy was not only to provide focus but to establish momentum for the larger of the two financings, the STSC Bonds.

A flood of orders for both the GO and STSC deals led to robust oversubscription and re-pricing scales that resulted in the tightest spreads seen by the City in a decade on its GO credit. Spreads tightened by up to 30bps from the pre-marketing period. The City saw its spread on the 10-year maturity in the deal shrink to 105bps (2019 deal had a 169 bps spread). This resulted in an All-in TIC of 2.39%.

The 2nd Lien STSC Bonds resulted in a very aggressive pricing as well in comparison to its last Senior Lien Bonds. Spreads tightened on certain maturities by up to 53bps for the 2020A and by up to 30bps for the 2020B from the premarketing period. This resulted in All-in TIC of 2.52%, for the 2020A, and 3.23%, for the 2020B.