The City of Chicago plans to issue $1.5 billion in general obligation (GO) and sales tax securitization corporation (STSC) bonds to refinance existing debt, aiming to save $110 million based on current market conditions . Refinancing replaces old bonds with new ones. By exchanging bonds with an average interest rate of 5.62% for bonds with an interest rate of approximately 3.75%, bonds with lower interest rates are being issued, contributing to the reduction of the city’s bond costs. The ordinance strictly limits bond issuance to cost-saving refinancing purposes. Other uses require City Council approval to ensure responsible debt management practices.
CHICAGO – The Board of Finance has given the green light for the city of Chicago to issue $1.5 billion in general obligation (GO) bonds.
It also authorized the Sales Tax Securitization Corporation (STSC) to issue bonds to assist in the refinancing and repurchase of a portion of the city’s existing GO and STSC bonds.
Based on current market conditions, the refinancing and bond repurchases are expected to save approximately $110 million.
STSC, established in 2017, has a higher bond rating than the city’s GO bonds. Its primary purpose is to refinance these GO bonds and help reduce the City’s debt service costs.
The $1.5 billion GO/STSC ordinance, scheduled to be considered by the City Council on Wednesday, follows responsible debt management practices, the mayor’s office said. The ordinance makes clear that the entire $1.5 billion can only be used for cost-saving refinancing purposes.
Any other use of bond proceeds would require City Council approval for amendments, and the funds cannot be used for operating expenses. The authorization allows for the issuance of up to $1.5 billion in bonds, but the city will only issue the full amount if it results in savings in debt service.
“The City of Chicago is committed to finding innovative and responsible ways to meet our fiscal challenges while prioritizing long-term budget stability,” said Mayor Brandon Johnson. “This refinancing plan represents another important step in building a stronger financial foundation that will benefit all Chicagoans.”
Just as homeowners refinance their mortgages, the city plans to issue new bonds with lower interest rates to replace older, higher-interest bonds. According to the mayor’s office, this will lead to cost savings.
On January 1, 2025, $850 million of the City’s GO bonds will be eligible for refinancing through call actions.
The city also plans to use a bidding process to purchase approximately $500 million in GO and STSC bonds and refinance those bonds for savings.
Under the plan, the city would replace existing debt with an average interest rate of 5.62% with new debt with a lower interest rate of approximately 3.75%.
The refinancing is pending City Council approval.
