5-year debt for Chicago is trading at basically the same interest rate level as the weighted-average coupon on outstanding general obligation bonds, which have an average maturity of 9.8 years. The city’s budget strategy of refinancing will not work in a rising rate environment.
For the first time in years, the 10-year borrowing rate for Chicago’s GO bonds exceeds the weighted-average coupon for outstanding GO debt (9.82-yr weighted-avg maturity / 5.22% coupon per Bloomberg). Longer-term borrowing is even more costly. Takes GO refinancing off the table.
The city plans to use its remaining STSC borrowing authority (which carries a higher rating) for a refinancing this month, but I’d guess rates have moved up vs the city’s initial assumptions, on which it based savings projections. Yields on the outstanding STSC bonds range from 4.7% to 5.8% for maturities ranging from 5 to 15 years.
For anyone in city government who follows me, I’d push to get transparency on what borrowing terms (maturities, rates, fees, repayment schedule) the city is baking in for upcoming offerings.