Budget – Debt Refinancing
· Underwriters agree to help refinance some Illinois debt. The $600 million in variable-rate bonds that will be refinanced are stapled to a set of “crocodile” clauses. Hidden under the dark water of the 2003 bonds’ contractual covenant are a series of punishment terms in which the State of Illinois promised to pay an enormous penalty ($150 million) should its credit standing fall below letter-of-credit level. A consortium of four banks has agreed to refinance the debt under terms that will replace the letters of credit requirement that was stapled, by covenant, to the old debt.
The bonds that will be refinanced under this agreement were placed during the administration of former Gov. Rod Blagojevich. The agreement, which was announced on Wednesday, October 12, is not expected to lead to an upgrade of Illinois’ sub-par triple-B credit rating. In addition, it is expected that the State of Illinois will have to pay fees to the refinancing banks in return for their replacement of the letters of credit. The refinancing is expected to be completed on November 7.