Illinois' Kamikaze Bondholders Cheer Massive New $6 Billion Bond Deal: "It Has Turnaround Potential"

Tyler Durden's picture

Just two days ago we wrote about how, despite a budget deal signed back in July that called for a massive tax hike, Illinois' unpaid payables balance had ballooned to a new all-time record high of $16,046,145,423.20 according the comptroller's office (see: Illinois Unpaid Vendor Backlog Hits A New Record At Over $16 Billion). 

...which was a 3-fold increase over the past two years.


Given that, you can imagine our surprise to wake up to the latest Illinois Bloomberg headline this morning declaring that all is well in the Prairie State and that bondholders are cheering the upcoming, massive $6 billion new GO bond deal by driving existing bonds to all-time highs.

As Illinois prepares for what may be its biggest debt sale in over a decade, its largest investors are celebrating a rally that’s transformed the state’s bonds from one of this year’s worst performers to one of the best.


Since the state in July resolved a two-year budget impasse that pushed its rating to the brink of junk, debt issued by Illinois and its local governments has vaulted to a 7 percent return this year, more than any other state, according to S&P Municipal Bond Indices. Until June 8, they were the worst performer among the five most-indebted states, which include Texas, California, Florida and New York.


The reversal came after lawmakers enacted a budget -- and raised taxes -- over Governor Bruce Rauner’s objections. They also extended Illinois authority to reduce a record pile of leftover bills by selling as much as $6 billion of bonds. It would be the state’s biggest sale since 2003 if done in a single offering.

Even more surprising was some of the praise offered up by asset managers on a state that, for all practical purposes, appears to be on a inevitable crash course with bankruptcy...this takes 'talking your book' to a whole new level.

Nuveen Investments“It has turnaround potential,” said John Miller, co-head of fixed-income at Nuveen, which bought more Illinois bonds in late June and July as the budget came together. The firm plans to take a “hard look” at the $6 billion borrowing, calling it a “benchmark-type deal” because it may be one of the largest of the year, according to Miller, who cautioned that the state’s rising pension-fund debts are still posing risks


AllianceBernstein“They’ve stopped the bleeding,” said Guy Davidson, director of municipal investments at AllianceBernstein. He said the firm is interested in buying more Illinois debt. “It’s not like we think they have solved their problems. We just think they’ve stabilized their problems.” Davidson said investors are “getting paid more than we think the risk entails”


Wells Fargo Asset Management“They’re not under the gun as much as far as ratings go,” saidDennis Derby, a portfolio manager at Wells, which holds $40 billion of municipal debt. The firm would be “more comfortable” if the state took action soon to reduce the $16 billion of unpaid bills


BlackRock:  The tax hike gives the state “more tools” to meet their expenses and obligations, marking an improvement, said Joe Gankiewicz, a credit-research analyst in Princeton, New Jersey, for the company, which oversees about $124 billion of municipal debt. The state’s unfunded retirement liabilities -- $130 billion, according to the Commission on Government Forecasting and Accountability -- remain an issue. “The pension expense is likely to outstrip the organic revenue growth in the state in the coming years,” Gankiewicz said

Perhaps these bondholders overlooked the fact that Illinois' 5 largest publicly-funded pensions are now $130BN underwater and only 37.6% funded?

IL Pension


Ironically, bondholders cheered tax hikes as the savior of Illinois' financial problems but repeated income tax hikes, property tax hikes and the state’s political dysfunction have resulted in record population losses over the last three years...

illinois outmigration put it into perspective, Illinois loses 1 resident every 4.6 minutes.

illinois outmigration

Last time we checked, non-residents weren't on the hook to pay Illinois taxes...

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J S Bach's picture

Yaaaay!  They put a bandaid on cancer!   It's all better now!  Go back to your grazing and TV watching.


Wait so they couldn't pay on the 16 billion and now 6 billion more of unpayable debt has been added and everything is ok? Brilliant I say.

Folkvar's picture

Who is dumb enough to buy this shit???


bamawatson's picture

parlay them with the hundred year venezuelan bonds; it's a lock

Manthong's picture


How the F can I get can I get a hold of these people?

I have a bridge in Brooklyn to sell them.

Shinebama's picture

Instead of cash they'll buy it from you with IL bonds.

BuddyEffed's picture

Are the bonds on the FED balance sheet already?

Or maybe draghi will scoop them.

Abe is a long shot.

Hugh_Jorgan's picture

Whew! My first thought when I read the headline was that Illinois had paid someone off for a headline that would sell bonds...

Now, I see that they paid a boatload of people off for headlines that would sell bonds.

Déjà view's picture

NEED ANOTHER FIX...same ones who bought Puerto Rican bonds...have to make up for it somewhere...

Gorgeous's picture

Take out a new loan to make minimum payments on the old loan.  Econ.Gov 101

Hugh_Jorgan's picture

Yep, all fixed!

Until it's not again.

PlayMoney's picture

You gotta be one stooopid mother fucker to buy IL bonds

MoreFreedom's picture

What's happening, is the politicians are deciding who gets paid, and who doesn't.  And creditors are opening up the campaign cash spigot to get the money the government owes them.   All it's really doing is buying some more time and digging the hole deeper.

MANvsMACHINE's picture

They will get what they deserve.

stacking12321's picture

theyve gone from losing 1 resident every 7.5 minutes in 2011 to 1 every 4.8 minutes in 2016.

that is improvement.

but i wouldn't mess around with betting for or against their bonds unless i was one of the GS insider-info crowd, who know whether or not any bailouts or other events are coming, and probably arrange for such to happen. they will eat the other traders' lunch.

Rapunzal's picture

I'm curious how long this FED induced shit show can go on. I'm really curious. I'm fascinated by how long this shit show runs without intermission, really fascinated. But it's unbelievable that the sheeple don't see it coming, unbelievable.

Should I be amazed on the level of how sublime the kabuki theater is running ? Should I start marveling at the NWO/Neocons/Bankers ?

But I digress they are doing gods job. I wonder if he is taking a break ?

Iskiab's picture

It will go on until it reaches a tipping point where no one's willing to buy the bonds, similar to third world countries with petrodollars recycling.

It's economic slavery of the government, but it will stop short of the world bank coming in and enforcing austerity. I've said it before, the only difference between debt and higher taxes is when the bill comes due. Cutting taxes and loading up on debt is insane.

They will get what they deserve, contrary to others though I'd buy those bonds. I see little chance of politicians allowing a default and if it even came close to a default another governmental organization would step in to buy the bonds, similar to when Germany bought the Greek debt. Politicians serve their banking masters above citizens. There's a reason many billionaires are in the government debt game, it's ridiculously high risk in reality but political connections make it easy money.

ClassicalLib17's picture

What a joke! Check out this site:  He has every state's federal, state, county, municipal, school district current employee salary and the pensioners as well. It's time to revolt! Most of you people think it's bad but in black and white it's 10 times worse.

ClassicalLib17's picture

A current city alderman with 30+ years on our council, 80+ years old, is a retired drivers training instructor/wrestling coach and his current "teachers" pension is $110,000 a year. Now, unless the Illinois General Assembly is going to have a state constitutional convention and remove the clause that was added during the 1970 state constitutional convention that states "these pensions cannot be impaired or diminished in any way, I don't see any way that Illinois can avoid defaulting on their grandiose pension obligations. He is but one of many tens of thousands.


GlassHouse101's picture

"there's no problem, now if you'll excuse me, I need to kick this can, here"

WTFUD's picture

I think it's 20 cents less than that figure!

Juggernaut x2's picture

I wish these dumb MFers would move out of my sleepy Chicago suburb- they are building houses around here like crazy.

Gorgeous's picture

Keep your powder dry and you might be able to slumlord in your own neighborhood.

Last of the Middle Class's picture

Now get out there and sell! Sell! Sell!  "Turnaround potential" OMFG! I'm laughing so hard my kidney hurts! 

Wile-E-Coyote's picture

When this thing blows up it's going to be beyond epic.

RafterManFMJ's picture

The word you’re looking for is “Epic.”

Horse Pizzle's picture

Venezuela bonds are a better value.

Omen IV's picture

Venezuela has the largest reserves in the world except for Russia - they have a temporary cash flow problem and a governance problem

Chicago has nothing but democrats, endless pensions to be paid and a welfare dominated culture


The assets are white people who are voting with their feet

Bay of Pigs's picture

You forgot the pimps, thugs and drug addicts shooting up the place like the Wild West.

The state and the city are disgraceful.

techpriest's picture

The irony is, the "Wild West" in real terms was far less violent than Chicago. I remember seeing a study not long ago that Abilene, Texas in the "wild west" days had a murder rate 1/30th that of Washington DC in the 2000s.

gregga777's picture

The violent Wild West is entirely a Hollywood created lie to sell movies and TV advertising. Contemporary murder rates in big Eastern cities like New York City were far, far higher than they ever were in the American West. In fact, murder rates in big eastern, Baltimore Murderland, New Jacked City, etc., and mid Western cities, Chiraq, St. Louis Misery, etc., are still far higher than they are in West.

Rapunzal's picture

If you deduct the crimes organized by our government, false flags, hoaxes, organized riots with provocateurs. Americans are very peaceful.

cosmyccowboy's picture

there is nothing like every citizen carrying a firearm to get the thugs to tone down their activities... ask the dalton gang what happens when an armed citizenry get's their dander up, they shot those boys to peices!!!

Crash Overide's picture

Would Jamie Dimon call muni bonds a fraud if they don't have billions in derivative trades behind them?

thisisallnonsense's picture

Just moved to Wisconsin from that shithole state. not that our crime rate is much better but the cost of living is much lower. house 38 years newer, 2x the size, much nicer and $150k less. property taxes 4k less. not real happy about foxconn but there are hiring sings on most business windows. lack of house due to the outflux from shitcago

Yen Cross's picture

    I'd love to see the q-3 P/L statement for the Illinois general fund.  Have all those vendors been brought current? Is the lottery solvent again?

 Have all those IOU's been paid? WE all know exactly where the funding for both Illinois and Puerto Rico has come from. The can just keeps getting kicked until it hits the 'mole hill'.

thisisallnonsense's picture

its oficially not a can, its now a barrel

ASimpleTrader's picture

"Last time we checked, non-residents weren't on the hook to pay Illinois taxes..."

Not yet at least. Until someone decides in DC that we have to bail out a failing state...

Yen Cross's picture

    Go get your case of beer, bag of Doritoes, shitty Dominoes pizzas, and report back to us on Monday.

  AS a reminder, the stated federal debt climbed almost $600 billion in ONE day, after the temporary debt ceiling deal.

 Who in their right mind thinks those debts weren't guaranteed in that massive increase???

RafterManFMJ's picture

And how do you protect yourself white man? Gold, and silver

techpriest's picture

I learned about the equivalent in Chinese history last time I was over there. When the latest dynasty goes full retard and starts seizing everything, you buy gold and bury it and all of your books (the emperors often ordered book burning). 2-3 generations later they are safe to recover, and continue the family legacy.

Whatever you don't get out of reach can and will be seized.

jmarshally's picture

I must presume, with copper and lead...

Joe Pugutz's picture

Too big to fail comes to mind.

Bay Area Guy's picture

Does that work with mortgages too?  If I buy a house and get way, way behind on the mortgage payments, can I float a loan to boost my overall debt.....debt that I've already shown I can't pay back?

Isn't this the very definition of a Ponzi scheme?  They'll pay off a few of the older debts and the new debtholders will be left holding the bag.

CosmoJoe's picture

Of course its great news!  The fuckers that are putting together this bond sale likely won't be around or in office when this can finally becomes an anvil and can't be kicked down the road any longer.

techpriest's picture

Also, I think the SEC will say that it is "in the financial interest of investors" for financial advisors to recommend bonds funds chock full of IL bonds.

are we there yet's picture

First is kick the can, then kick the barrel, then kick the Tanker. Then it is kick the bond holder. Ask Greece.