Chicago’s first attempt in years to sell municipal bonds to public buyers rather than financial institutions was a success, resulting in lower city interest rates and strong investor support for community projects. officials said on Tuesday.
Last week, the city committed $160 million to “social We called it “Bond” and put it on the market.
The public offering was structured to give retail investors, especially Chicago residents, the first cracks in the bond. Municipal bonds are usually gobbled up by institutions.
As a result, 8% of bond sales went to Chicago residents and 24% to Illinois investors, said Jennie Huang Bennett, the city’s chief financial officer. She said the city generally believes that only about 0.3% of bond sales are paid directly to individuals.
Bonds have been in high demand across the board, she said. The greater the demand, the lower the interest the city has to pay.
Bennett said yields on the bonds, which are not subject to federal taxes, range from 2.56% to 3.86%, depending on their maturity from 2026 to 2044. Also issued was a taxable bond that yields a yield of 4.408% to 5.293%, depending on the maturity from 2026 to 2044. 2041.
While individual participation was emphasized, large investors were also drawn to bonds. Bennett said the city has seen considerable activity, known as ESG, from investment funds focused on environmental, social and governance criteria.
She said 11 ESG-focused investment funds had acquired $88 million worth of bonds.
Bennett called the offering “a unique social bond that enables Chicagoans to invest in a historic investment in their community.”
City marketing and the decision to lower the minimum investment from the standard $5,000 to $1,000 encouraged the sale of bonds to individuals. The individual was able to get a head start on his day in purchasing bonds before the institution became available.
In addition, 43 participating banks and brokerage firms collaborated on a streamlined process for receiving individual orders.
Jack Brofman, the city’s deputy chief financial officer, said the last time the city approached people directly with a bond sale was in 2005-06.
Bennett said recent improvements in the city’s bond ratings by outside firms have reduced the overall interest the city has to pay. The higher the bond’s rating, the more certain an investor will be paid. The bonds were issued by the Sales Tax Securitization Corporation, which is affiliated with the city but has no pension obligations. It repays creditors from sales tax.
Other social bond-funded programs include grants to purchase electric vehicles for the city’s fleet and to rehabilitate vacant buildings along nearby commercial roads.
