Illinois sold $1.3 billion of general obligation bonds on Wednesday at fatter yields as investors demanded a higher return due to the state's inability to rein in huge public pension costs.
Bonds due in 25 years in the Illinois deal yielded 5.65 percent or 160 basis points over Municipal Market Data's triple-A scale compared to a spread of 138 basis points on Tuesday. That matches the record-high 160 basis-point spread last hit in January 2011.
The 4.46 yield on uninsured 10-year bonds resulted in a spread over MMD's scale of 165 basis points versus 145 basis points on Tuesday.
"This deal offered considerable value and subsequently received strong interest," said Domenic Vonella, a MMD analyst.
Governor Pat Quinn's office said downgrades of Illinois credit ratings, including two earlier this month that were due to a lack of a pension fix, will cost the state more money to pay off the bonds compared with prices on debt sold Wednesday by other muni issuers not hit by similar downgrades.
"Today's bond sale ensures that the work continues on much-needed improvements to roads, bridges and other infrastructure projects across Illinois," Quinn said in a statement. "But legislative inertia has a price, and today the price for taxpayers was an extra $130 million."
The deal attracted more than $9 billion in orders from 145 investors and that the deal resulted in an average interest rate of 5.042 percent, according to Quinn's budget office.
The sale was the state's first for GO bonds since it ended its spring legislative session on May 31 without a fix to its nearly $100 billion unfunded public pension liability. The lack of action on pensions led to downgrades of Illinois, already the lowest-rated state, by Moody's Investors Service and Fitch Ratings.
A legislative conference committee is now tasked with coming up with a plan to repair the nation's worst-funded state pension system that Illinois lawmakers can consider by a July 9 deadline.
Illinois' deal included bonds insured by Assured Guaranty Municipal Corp in four maturities. The spread for insured bonds maturing in 10 years was 144 basis points over the MMD scale.
Illinois' bonds were initially priced with even higher yields that were lowered as much as 20 basis points on the long end of the deal in a repricing.
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