Illinois debt watch

[Snagus]

Can the Fed Reserve buy these bonds? How would we find out?

[FormLetter]

I don't know if the Fed can do it. If it can't, then it hasn't created a mechanism yet to purchase state/muni bonds. So look to see what mechanisms it creates. If there is a new one for state/muni bonds, then that is what will happen.

[A Student]

So Illinois has an 8% (assumed) investement rate, and a <6% cost of funds. Basically, they are just a big hedge fund. I don't see the problem. Hedge funds are hugely profitable most of the time right. All those Illinois taxpayers should expect a tax cut once the profits start rolling in...

[Jwallace]

What could possibly go wrong?

[campbell]

http://online.wsj.com/article/SB1000...542651930.html

Illinois enticed hedge funds, mutual funds and non-U.S. buyers to purchase $3.7 billion in new pension bonds, but the cash-strapped state had to pay dearly to get the deal done.

Illinois officials were forced to promise a yield that is about two percentage points higher than was paid by companies with similar credit ratings in recent bond offerings. The state's bond rating is one of the lowest among the 50 states.

The bond sale is likely to soothe some fears about whether Illinois and other especially troubled governments will be able to tap the capital markets while their budgets are strained by sluggish tax revenue and daunting expenses for health care and pensions. But the fact that Illinois had to borrow from investors to make a required contribution to its pension funds shows the depth of its fiscal problems.

Illinois tapped the taxable-debt market, where yields tend to be higher than in the tax-exempt municipal-bond market, because selling bonds to prop up sagging pensions typically doesn't qualify for tax-exempt status under the U.S. tax code, say bankers and state officials.

The longest maturity in the Illinois bond deal, due in 2019, was sold at a yield of 5.877%. In comparison, a $400 million "junk" bond issued by auto-parts maker Dana Holding Corp. and maturing in 2019 had a yield of 6.24%.

Sorry if this is a repeat. I can't be bothered to check my own threads.

[campbell]

http://www.zerohedge.com/article/int...n-pension-bond

And so the Illinois pension bomb has been kicked down the street for another few months. The state just priced its formerly delayed $3.7 billion bond courtesy of a plethora of International Wealth Funds. As the WSJ reported earlier "Initial indications on the deal Tuesday showed $6.1 billion in orders, with around a fifth of those coming from international investors, such as sovereign-wealth funds and insurance companies, one market participant said." The use of proceeds, as reported previously, is to fund payments to state employee pension funds. In other words, Illinois pensioners are now on the hook to the periodic generosity of bondholders to make sure there is enough money in the pot to fund their retirement.

The various tranches that priced are as follows:

03/01/2014 100,000M 4.026% +280
03/01/2015 300,000M 4.511% +235
03/01/2016 600,000M 4.961% +280
03/01/2017 900,000M 5.365% +250
03/01/2018 900,000M 5.665% +280
03/01/2019 900,000M 5.877% +240

Much of the demand was driven due to the lack of supply for muni paper: "Just $1.7 billion of taxable muni debt has been sold in 2011, according to Thomson Reuters. Roughly $16.5 billion of taxable debt was sold during the same time frame last year, the firm's data shows, with nearly three-quarters of that amount coming as BABs."

[NoName]

Illinois state treasurer says ... please don't lend these drunken sailors any more money
via the corner
http://www.stltoday.com/news/local/i...9bb30f31a.html

Illinois chief fiscal officer said Monday he is willing to dial up the bond houses and finance companies to alert them that lending the state more money, as Gov. Pat Quinn has proposed, would be a "major risk."
' 'If I need to send letters o the rating companies to tell them the treasurer of Illinois is opposed to more borrowing, I'm going to do that," said Republican Treasurer Dan Rutherford.
Quinn, a Democrat, warned that without borrowing vendors and service providors would be left unpaid.

[limabeanactuary]

I'm curious how that works out for them.

[Snagus]

Kinda like giving credit cards to college kids, hoping the parents will bail them out.

[campbell]

http://www.bloomberg.com/news/2012-0...-jpmorgan.html

Illinois’s (STOIL1) cost to borrow relative to top-rated issuers tripled from 2009 when it sold $800 million of bonds today, after its credit rating was cut by Moody’s Investors Service to the lowest among U.S. states.
The $525 million tax-exempt part of today’s sale included 10-year general-obligation bonds priced to yield 3.1 percent, according to data compiled by Bloomberg. That’s 110 basis points more than the 2 percent yield of top-rated 10-year debt.
A 10-year bond sold on Sept. 16, 2009, the last time Illinois took competitive bids for tax-exempt general obligations, was priced at 37 basis points above top-rated debt. A basis point is 0.01 percentage point.
Moody’s cited “chronic” late bill payments and unfunded retirement obligations when it cut $32 billion of Illinois general-obligation debt one level on Jan. 6 to A2, the sixth- highest rating and the lowest among U.S. states. The pension has assets to cover only 45 percent of projected liabilities, the least of any state, according to a study by Bloomberg Rankings.