Chicago’s Sales Tax Securitization Corp. will take retail orders Wednesday on a long-planned issue that prioritizes local buyers on the city’s first bonds to carry a social bond designation and gives special consideration for environmental, social, and governance investors.

The STSC offers $305.3 million of tax-exempt paper in three series — including $98 million of bonds that carry a “social” designation — and $430.7 million of taxables in two series including $60.4 million of “social” bonds. The sizing could change depending on market conditions and investor interest.

The new money funds projects that are part of the COVID-19 Chicago Recovery Plan “that can demonstrate social outcomes and impacts that will promote an equitable economic recovery and safe and prosperous neighborhoods,” Chicago’s Chief Financial Officer Jennie Huang Bennett said in an investor presentation.

The remainder of the deal refunds outstanding debt for savings including tendered general obligation bonds. The city put out a call to holders of $2.9 billion of GOs to tender their bonds earlier this month. Capitalized interest is also included.

The city distributed a pre-marketing wire with initial pricing scales Tuesday and will take retail orders on the social bonds Wednesday along with indications of interest on all of the taxable bonds in the deal with the pricing for the tax-exempt and taxables set for Thursday.

UBS Financial Services Inc. is running the books with RBC Capital Markets and Siebert William Shank & Co. LLC serving as co-bookrunners.

The city conducted a full court press with institutional investors and ESG funds ahead of the deal and a GO sale that priced last month. On the social bonds, locally based retail orders have priority followed by national retail orders. Retail is defined as orders placed by an “individual, or a bank trust department, money manager, or registered investment advisor, including separately managed accounts, acting on behalf of an individual, with a maximum order of $1MM per account,” according to the city’s pre-marketing wire.

Zip codes must be included with all retail orders submitted. Retail orders greater than $1 million “will be accepted at the discretion of the city of Chicago and UBS.”

In the tax-exempt piece, the $98.3 million new money social bond series A selling under the senior lien offers maturities between 2026 and 2034 and spreads to the Municipal Market Data AAA benchmark of 44 basis points to 84 basis points with the 10-year priced at 3.10% at a 79 bp spread. Coupons range from 3% to 5% depending on the maturity. A 2042 maturity offers a 4% coupon and 119 bp spread while the 2044 bond offers a 5% coupon and 94 bp spread.

The $75 million C series of tax-exempt senior lien refunding offers maturities between 2031 and 2039 with 5% coupons and spreads between 70 bps and 90 bps.

The $132 million second lien tax-exempt refunding series A offers maturities between 2024 and 2037 with coupons of 3%, 4%, and 5% and spreads of 35 bps to 95 bps on the long end.

The $60.4 million taxable new money senior lien social bond series B matures between 2026 and 2034 with a term bond in 2041 and spreads to Treasuries of 70 bps to 185 bps.

The taxable $370.3 million second lien refunding series B matures from 2025 to 2033 with spreads to Treasuries of 45 bps on the short end to 160 bps on the long end.  

The 10-year STSC bond in the city’s December 2021 issue saw a 39 bp spread to the AAA benchmark and was evaluated in November at 111 bps and has narrowed over the last two months to 96 bps, according to Refinitiv-MMD data earlier this month.

Chicago set up the STSC as a higher-rated bankruptcy-remote special entity in 2017 to refund higher-yielding GO debt for savings.  

The senior lien bonds are rated AA-minus by S&P Global Ratings, AA by Fitch Ratings and AAA by Kroll Bond Rating Agency. S&P and Fitch assign a positive outlook.  

The second lien bonds are rated AA-minus by S&P and Fitch and AA-plus by Kroll. S&P is positive while Fitch and Kroll maintain a stable outlook.

Retail interest is typically in short supply in Illinois as it’s one of just a few states that don’t offer a state exemption on interest, but the city hopes to drum up local interest based on the projects being funded. The city established a website with information and launched a marketing campaign.

“We have marketed on radio, PSA, a microsite and have done briefings with aldermen, philanthropies, chambers of commerce and other local civic groups,” Bennett said.

Mayor Lori Lighftoot also recorded a promotional video posted on social media channels.

Kestrel Verifiers provides in the offering statement the independent opinion that the bonds meet the criteria laid out by the International Capital Market Association’s social bond principles.

Funds will go toward electrifying the city’s light-duty fleet by 2035, expanding the tree canopy, development of non-congregate housing, development of supporting housing, development of mixed-use housing, vacant lot elimination, and community development grants, according to the offering statement.

As of October, the STSC had $2.59 billion of senior lien and $2.02 billion of second lien outstanding. The STSC sale follows the city’s $533 million GO issue last month that benefitted from the restoration of an investment-grade rating from Moody’s Investors Service, which lifted the city to Baa3 from Ba1 in November. The 10-year with a 5% coupon in the city’s GO sale last month landed at 4.09%, a 151-basis point spread to the AAA benchmark.

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