CHICAGO (Reuters) - The financially troubled Chicago public school system will pay hefty interest rates for a general obligation bond issue that was doubled in size on Monday to $500 million, up from the $250 million that the district announced last week.
The refunding portion of the deal was increased on Monday to $215 million from the previous $50 million, while the new money portion was raised to $285 million from $200 million, according to a preliminary pricing scale.
Underwriters led by J.P. Morgan priced the unrated general obligation bonds targeted at "qualified institutional buyers," with a final 7.65 percent yield and 7 percent coupon for new bonds due in 2046, according to the district. The bonds were initially priced to yield 7.75 percent.
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The repricing of refunding bonds due in 2042 dropped the yield 5 basis points to 7.55 percent with a 7 percent coupon. The yield on refunding bonds due in 2030 with a 6.75 percent coupon remained at 7.25 percent.
Escalating pension payments have led to drained reserves, debt dependency and junk bond ratings for Chicago Public Schools (CPS), the nation's third-largest public school system.
"CPS successfully completed the issuance of its GO bond offering, with more than $1 billion in orders for $500 million in bonds," Ron DeNard, the district's senior vice president of finance, said in a statement.
The bonds' spreads over Municipal Market Data's benchmark triple-A yield scale ranged from 474 basis points to 489 basis points, indicating the U.S. municipal market was demanding fat yields for the debt. Those so-called credit spreads were narrower than spreads in the district's February 2016 bond sale, in which yields topped out at a massive 8.5 percent.
The refunding will restructure outstanding bonds in a "scoop and toss" that pushes out payments on the bonds. The prospectus included nine pages of potential risks for buyers.
(Reporting By Karen Pierog; editing by Diane Craft)