CHICAGO (Reuters) - The Chicago Board of Education gave final approval on Wednesday to the sale of up to $1 billion of new and refunding bonds for the junk-rated district.
The third-largest public school system in the United States will sell up to $840 million of general obligation bonds through Barclays and JP Morgan Securities to fund capital improvements using a $45 million property tax hike approved by the Chicago City Council last year. The district will also restructure up to $160 million of variable-rate bonds into a fixed-rate mode through a yet-to-be-announced underwriting team.
Emily Bittner, a Chicago Public Schools (CPS) spokeswoman, said earlier this week that market conditions will dictate when the deals will be priced.
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CPS is struggling with pension payments that will jump to about $720 million this fiscal year from $676 million in fiscal 2016, as well as drained reserves and debt dependency. As a result, the district's credit ratings have fallen deeper into the junk category, most recently with a downgrade from Moody's Investors Service.
The muni market has demanded fat yields for CPS debt. Even a private sale of $150 million of 30-year GO bonds by CPS in July to J.P. Morgan came at a 7.25 percent yield, which was 513 basis points over the yield for AAA-rated bonds on Municipal Market Data's (MMD) benchmark scale.
Meanwhile, uncertainties lurk for CPS. A proposed four-year contract that averted a teachers' strike earlier this month is scheduled for a ratification vote by Chicago Teachers Union members next week. New money for classrooms under the tentative deal will flow from a nonrecurring revenue source - surplus property taxes generated by city economic development districts.
The school district's $5.46 billion operating budget includes a one-time, $215 million state of Illinois pension contribution that is contingent on the legislature's passage of major state-wide pension reforms by January.
(Reporting By Karen Pierog; editing by Grant McCool)