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The new independent finance authority the Chicago City Council approved to borrow up to $3 billion in sales tax bonds on the city’s behalf is courting investors.

The Sales Tax Securitization Corporation plans to issue up to $574.5 million of sales tax secured bonds in the first week of December. This includes approximately $174.6 million in  Series 2017A Bonds and $399.9 million in Series 2017B Bonds.

Sales Tax Securitization Corporation Preliminary Offering Document 

The new agency has already received two AAA ratings from credit rating agencies Fitch and Kroll’s and a AA rating from S&P. That stability is due to the corporation’s status as a “bankruptcy-remote special purpose entity.”

Under the recently passed state law, all of the city’s share of sales tax revenue will be transferred to the borrowing agency to secure the bonds. This means the city’s sales tax revenue, about a quarter of the city’s general fund, would be exempt from bankruptcy proceedings and investors would be paid first.

The real test is investor confidence in the city’s ability to balance its books. Chicago created the entity so it could raise money from investors without paying a premium on the interest. The city’s outstanding general obligation bonds are below investment grade, which is fueled in part by market concern over ballooning pension liabilities. This could explain why the word “Chicago” is missing from the title of the new corporation.

About $2.3 million of the money raised through multiple offerings will cover payments on outstanding general obligation debt, another $700 million will retire outstanding sales revenue bonds.

City of Chicago Securitization Structure One Pager

City of Chicago Securitization PowerPoint

Mayor Emanuel spent much of the past year lobbying Springfield for the ability to outsource the city’s debt load by creating an entity that is legally independent of the city.The mayor and his finance team told aldermen this will free up about $94 million in corporate fund revenue in next year’s budget that would have otherwise covered debt payments.