CTA to sell debt backed by higher online sales taxes

The size of the agency’s deal could reach $350 million, according to preliminary pricing reported Tuesday by Bloomberg News. The spread to benchmark AAA securities ranged from 94 basis points above the MMD curve on debt maturing in 2046 with a 5% coupon to 125 basis points on debt maturing in 2057 with a 4% coupon, based on preliminary pricing.

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Chicago’s transit system relies on sales taxes to manage first and second lien loans before tapping into general funds. The 2021 sales tax total of more than $866 million was nearly 27% higher than 2020 and nearly 16% higher than 2019, according to the CTA.

Higher collections from recreational cannabis sales and a new tax levy on online retailers, which took effect in January 2021, helped bolster revenue despite lower traffic during the pandemic, according to the budget documents.

Outlook

On March 10, S&P Global Ratings assigned an A+ rating to the bonds with a stable outlook.

“A strong and rapid economic recovery, along with increased tax collections driven by legislative changes that increased online sales tax collections, led to an extraordinary increase in promised revenue for fiscal year 2021. “said Andrew Bredeson, an analyst for S&P, in the report.

Market view

The transit authority last entered the market in mid-2021, selling nearly $121 million in bonds with a maximum spread of 33 basis points and a 5% coupon on debt maturing in 2028. Market technicals last year saw record inflows, with investor demand outpacing the supply of bonds issued.

By contrast, this year investors are looking for defensive positions amid rising interest rates, inflation and war in Ukraine.

“Each trade gets a little more contested for its pricing just because of the exits,” said Daniel Solender, director of non-taxable fixed income for Lord, Abbett & Co.

Chicago and Illinois issuers may also need to provide more incentives — such as a higher yield — to entice buyers, given the city and state’s credit quality strains. , Solender said. Illinois has the lowest rating among US states, which could add pressure to the CTA deal, he added.

Concerns, including crime and uncertainty about the full return of workers to offices, may also impact both traffic and the region’s economic rebound. While ridership is expected to hit 251.2 million in 2022 from 196 million in 2021, it’s still muted from 455.7 million in 2019, bond filings show. The city is increasing the number of officers, security guards on trains, buses and stations to reduce crime and make passengers feel safer, Chicago Mayor Lori Lightfoot said. March 9.

“The challenge is that everything in the Chicago area has to perform a little bit better than the rest of the market given all the issues they’re facing,” Solender said.

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David A. Albanese