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.