With International Wealth Fund Sponsorship, Illinois Prices $3.7 Billion Pension Bond

Tyler Durden's picture

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."

Those who wish to get in on the Illinois debt bonanza don't despair - many new opportunities will come:

Illinois has already sold a lot of debt in the muni market recently, and that borrowing binge looks likely to continue. Last year, Illinois sold $6.72 billion in taxable debt, according to Thomson Reuters, and Gov. Pat Quinn's budget proposal from last week suggests the state borrow an additional $8.75 billion to pay overdue bills.

The likelihood of additional borrowing from Illinois was one reason why John Donaldson, director of fixed income at Haverford Investments in Radnor, Pa., passed on buying the pension debt.

"This will not be the last time Illinois issues bonds this year," he said. "Despite the favorable impact of the tax increase, the debt issuance is still going to be overwhelmingly large. You'd like them to get both sides of the equation right."

The premise of course is that munis default less than corporates. Which may be the case unless Meredith Whitney ends up being proven right.

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Ragnarok's picture

Gov'ts living bond auction to bond auction.

chet's picture

Borrowing money to pay retirees. 


"All we need is a little more time.  We'll figure something else out.  I swear!"

Sean7k's picture

Let's see, you figure 8-9% investment income to support the plan. Now add 5% for the bond cost. Now, you need 13-14% return every year to STAY EVEN! They couldn't stay even before, so how do they stay even now? 

If Madoff had this kind of backing, he would have gone on forever. 

Agent P's picture

The pension fund doesn't bear the cost of debt, the state does...your conclusion is still correct though.

Buck Johnson's picture

Your exactly right, the state does but guess what the state will do.  They will cut pension benefits and other things in order to restructure and to be able to go back into the muni market.  Yea the state is responsible, but they will pay it on the backsides of the retirees and the people of Illinios.

StychoKiller's picture

Who are the yahoos passing out drinks to these lushes??

Cleanclog's picture

I wonder if this is part of the explanation for why the 5 yr Treas auction was such a pile of crap today.  Maybe the word to the sov. wealth funds and others was . . . save a state from getting really bad in order to support the USA?  Or maybe they like the nearly 300bp greater yield.  Or maybe they "know" that state bonds will start being accepted for POMO (sarc/ on that last point . . . but then again?)

Hard1's picture

It's the Lybians buying anything they can outside of their country....most of them stand to loose it all anyway, just a couple years later.

Head for the Hills's picture

It is the Fed behind a shell game. 

Nobody else is as generous as the money printers.

Buck Johnson's picture

And sooner or later it will be just the govt. will be the only buyer of the bonds.

Josh Randall's picture

Israel expects Hyman Roth..errr...Rahm Emanuel to deliver on these bonds

Guy Fawkes Mulder's picture

Seriously. What else could it be?

buzzsaw99's picture

Yep. Rahm's connections in the WH is what bondholders (and illinois voters) are banking on. Borrowing money to pay pensioners. Good grief!

tekhneek's picture

Bonds, bitchez.

whatz that smell's picture

coordinated intervention, btchz!

magic green light ignites rabid synchronistic dip buying! truly impressive.

god bless the bernank! may he QuEase forever!

John McCloy's picture

Here comes the push green. Markets continue along under the assumption that until Ben is deposed from power the corruption and lies will continue.

Oh regional Indian's picture

Rahm is in the house boyz and girlz. Rahm's in the house.
Chicago's (Ill noises) days of begging for fiat are over.
Look west. CA is where it will detonate.
California = Kali Poorne (End of Kali, literal sanskrit)

dark pools of soros's picture

Can they sell the next 75 years of parking meter funds to cover this?



AbandonShip's picture

No, we've already leased it out for like 99 years to Daley's cousin.  Seriously.  Look it up.

Panafrican Funktron Robot's picture


Bazooka'ed pension funds by way o' stock market crash = outsized bond issuance and subsequent unsustainable debt load. 

apberusdisvet's picture

suuuuccckkkkkeeers are reborn every minute in the marxist/union/mafia capitol of the mid west Ponzi America

savagegoose's picture

so  state workers can rest assured their pensions are safe... for another 6 months!

NotApplicable's picture

Glad I don't live in Illinois any more! Or should I say, the International Republic of Illinois?

Looks like somebody just bought 12,910,409 personal servants. Soros, is that you?

dark pools of soros's picture

..the pool's warm.. come in for a dip

Agent P's picture

12,910,458...you forgot to add our new guests from Wisconsin and Indiana.

dick cheneys ghost's picture

Union protests planned for all 50 states for saturday.



gwar5's picture

The commies are coordinating their revolution.

Looks like Glenn Beck was right after all. Crazy.

Looks a little more like the Latin Model to me.

Obama can always fix it right up with martial law.


Greater Fool's picture

Hm, nothing like levering up to throw money into this market. Good luck, Illinois!

Seasmoke's picture

dont worry Rahm is on the way to save Illnoise

SwingForce's picture

Repeat after me:



repeat, out loud.

Seasmoke's picture

and they borrow money for "retirees" who pack up and take their pension money elsewhere or if connect/corrupt get a 2nd public job

PulauHantu29's picture

No problem. Any losses they incur will just be passed to the Middle Class taxpayers of Illinois...all profits will be given to bondholders.

More of the same.

Seasmoke's picture

Privatize the gains, socialize the losses.....the real cause of the anger

gwar5's picture

Squid pro squid. Just recycled Bernanke bucks.

I am a Man I am Forty's picture

what idiot would chase a percentage point for that bottom tranche??????

Scottj88's picture

Great, and with Emanuel, Illinois is in for a real treat...

Dangerous times ahead for the economy...


Inflation coming...

150$, then 200$+ oil coming...

Prepare youself

10kby2k's picture


I have a question: Why would a state sell taxable bonds that are not subsidized? Is it a legal question or are they suibsidized in some other way? 

Gordon Freeman's picture

Remember what happened when the sovereign wealth funds were "investing" in the big banks?  That one didn't turn out so well...

ZackAttack's picture

You know eventually some state's going to get the bright idea of using the pension money to buy the bonds. I mean, it's worked so well at the national level and all.

Greater Fool's picture

+several trillion

Social Security has been doing it for years.

ivana's picture

International Wealth Funds???

Let's see ... sounds like coming from offshore ... invested by WS "utilities" ... oh now I see - it's FED money again! :-)

AbandonShip's picture

"tranches"....I know I've heard that word before somewhere.  Something about correlations.  Oh well

cranky-old-geezer's picture

State govt (and local govt) pensioners are screwed.   The Fed is the only real funder of fund shortfalls now, via proxies obviously.  Folks may get their checks but the dollars won't buy much.

Wags's picture

So the Fed lends imaginary & basically free money to the Big Banks who loan it to Foreign Funds who then buy Illinois Bonds.Win-Win-Win. Lose US

vxpatel's picture

The city and state still own title to the stadiums of some pretty big sports teams...ebay bitchez...

kummar's picture

Are you really trying to say that these psychics are saying that AIG will survive and continue to be successful they way they were in 2000? Let me know what you have to say, please. My e-mail address is

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