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Illinois Sets $800 Million General-Obligation Bond Sale

Illinois plans to offer $800 million of tax-exempt and taxable general-obligation bonds in a competitive sale April 2, its first since becoming Standard & Poor’s lowest-rated U.S. state.

The $450 million of tax-exempt securities and $350 million of taxable debt will be sold the same day, according to offering documents released yesterday. The bonds will mature from 2014 to 2038 and proceeds will pay for road, rail and school projects.

The fifth-most-populous state postponed a $500 million offering Jan. 30, five days after S&P cut the rating on its debt to A-, six steps below AAA. It is the lowest grade among U.S. states. The state cited unfavorable market conditions as reason for the delay.

“After we postponed the sale earlier this year, we opted to wait” until after Democratic Governor Pat Quinn presented his budget, Abdon Pallasch, assistant budget director, said in an e-mail. The deal increased to $800 million because the state has “more projects ready to get under way now at the start of construction season.”

The state this week settled with the U.S. Securities and Exchange Commission over fraud charges, the second state to do so. The regulator said Illinois misled bond investors from 2005 to 2009 about shortfalls in retirement funds.

Illinois has the weakest pension system among U.S. states, with just 39 percent of assets to cover projected obligations for five major groups of public employees, according to the Chicago-based Civic Federation, a nonprofit group that tracks government finance. The state also faces a backlog of $9 billion in unpaid bills.

Illinois and its localities pay the highest interest rate of 19 states tracked by Bloomberg. Investors demand a yield penalty of 1.3 percentage points above AAA securities to own debt of Illinois issuers, almost seven times the average in 2005, when the SEC said the inadequate disclosure began.

To contact the reporter on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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