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Chicago Transit Authority (IL)



Second Lien Sales Tax Revenue Bonds, Series 2020A

August 27, 2020


Image by Sam Mgrdichian

SWS generated over $3.3 billion in priority orders from 63 different investors (8.8x oversubscription) – 30 of whom did not previously report CTA holdings

The Series 2020A Bonds were priced on August 27, 2020 to refund a portion of the CTA’s outstanding Capital Improvement Project Notes and finance capital projects contemplated by the CTA’s capital improvement program, including the extension of the Red & Purple Lines, facility improvements and the purchase of rail cars and buses. S&P and Kroll affirmed the Second Lien Sales Tax Revenue Bond ratings of A+ and AA-, respectively with a negative outlook. The negative outlook is due to concerns relating to the COVID-19 pandemic.

The Bonds were structured as term bonds in 2045, 2050 and 2055, with a 4% coupon on the 2050 maturity and bifurcated 4% and 5% coupons on the 2055 maturity to meet investor demands. Before pricing, munis were under some pressure along with a weaker tone in Treasuries. The new offerings from the prior week had remaining inventory balances which was providing a push for higher yields. In the background, strong housing data and the durable goods release coupled with positive therapy and vaccine hopes continued to drive the equities markets. The day of pricing, tax-exempt bond yields in 7yrs and longer rose. Treasuries steepened after Fed Chair Powell announced the Fed’s adoption of an average inflation target. Though long-term yields would want to price in a higher term premium to be compensated for the prospects of rising inflation, the market wanted to hear specific policies from the Fed instead of its general commentary. The strong sentiment surrounding CTA helped mitigate some of the pressure in the market.

In conjunction with the Series 2020A Bonds, the CTA sold $534 million of taxable bonds, requiring a seamless coordination of two transactions. The POS and a slides-only investor roadshow were posted almost two weeks prior to pricing. Given the impact of COVID-19 on the transit sector, the financing team also made time available for investor one-on-one calls with the CTA. With the expected new issue calendar for the week of August 24th totaling approximately $11 billion (both negotiated and competitive), SWS recommended pre-marketing the transaction on Wednesday and price early on Thursday morning in order to get in the market early and solidify investor interest.

The CTA staff participated in 11 one-on-one calls with investors. The investor roadshow was viewed by 29 unique investors. Given the tone in the muni market and positive investor feedback gathered by SWS during the pre-marketing period, SWS recommended tightening spreads by 5 bps in all maturities for preliminary pricing vs. pre-marketing levels.

SWS generated over $3.3 billion in priority orders from 63 different investors (8.8x oversubscription) – 30 of whom did not previously report CTA holdings. At re-pricing, SWS tightened spreads an additional 12 bps and retained $3 billion of priority orders from 55 investors. Final pricing spreads were lower by 29-31 bps compared to the syndicate’s consensus levels. The firm achieved a low all-in TIC of 3.77% (avg. life of 29.0 yrs).

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