Chicago Wastewater Transmission Revenue 2017AB

City of Chicago (IL)
$396,075,000
Wastewater Transmission Revenue Bonds
$180,590,000 Project Series 2017A and $215,485,000 Refunding Series 2017B

Siebert Cisneros Shank achieves attractive pricing results for Chicago’s $396 million Wastewater Transmission Revenue Bonds

On June 6, 2017 Siebert Cisneros Shank served as book-running senior manager for the City of Chicago’s Wastewater Transmission Revenue Bonds. The Bonds were rated “A/AA-/AA-” by S&P, Fitch and Kroll respectively. In addition, the Project Series 2017A 2042 and 2052 maturities were insured by AGM (AA/AA+ by S&P and Kroll).

Bond proceeds for the 2017A were used to finance capital improvements and extensions of the City’s Wastewater Transmission System (the “System”) and the Series 2017B proceeds were used to current and advance refund a portion of the City’s Wastewater Transmission Revenue Bonds, Series 2006A, 2006B and 2008A.

Despite concerns surrounding the City’s pension funding, a general Illinois pricing penalty, and negative rating actions at the City and State levels, SCS was able to successfully price the Wastewater transaction at tighter spreads than both the City’s stronger Water credit that priced in May 2016 and recent secondary market trades.

SCS presented structuring alternatives including alternative placement of principal, shorter call options and the benefit of financing without a debt service reserve fund. We worked with the City and the working group to structure, market and highlight to rating agencies and investors the key credit strengths of the water and sewer systems—essential service providers with dedicated revenue streams.

The time schedule required careful coordination with the City’s separate Water Revenue bond issue scheduled to price the day after the Wastewater transaction. SCS took the lead in crafting a rating presentation for both financings. The City had been on negative outlook by Fitch for two years and despite strong efforts, Fitch downgraded the two systems prior to releasing the POS.

We developed a focused pre-marketing plan including one-on-one calls and an investor presentation which was viewed by 41 institutional investors—14 of whom placed nearly $604.8 million in orders. SCS took the lead in arranging ten one-on-one investor calls for both transactions. Of the 10 buyers that participated in the calls, 5 placed nearly $218.3 million in orders for the Wastewater issue.

Market conditions were favorable during the week of pricing with UST and MMD on June 5th unchanged from the previous week’s rally. Yields decreased 2 – 11 basis points the week prior to pricing and were lower by as much as 3 basis points on the day of pricing. Less than a week before pricing, the State of Illinois was downgraded and on pricing day two of the three bond insurers were placed on negative watch.
Given the size, structure, and overlapping maturities, SCS recommended coupon alternatives and a 35-year final maturity. We opened the transaction to reverse investor inquiries for bond insurance. Despite the recent rating events, SCS’ underwriter proposed pre-marketing at 5 – 15 bps through the consensus scale. The total transaction was 3.4x oversubscribed with the bonds generating more than $1.34 billion of institutional orders, $1.31 billion of which came from SCS.

  • 77 different investors placed orders, 48 of which had not reported holding
  • $321 million in orders came from 8 investors that reported holding the bonds to be refunded

In response to a strong marketing effort and the City’s structuring flexibility, SCS proposed tightening spreads 3 – 8 bps throughout the curve at re-pricing and agreed to underwrite $24.015 million of unsold bonds. The City locked in approximately $32.6 million of PV savings on the Refunding Series 2017B and an all-in TIC of 4.09% on the Project Series 2017A with a 35-year final maturity (average life of 22.756).