Chicago schools defend pledged revenue ahead of bond sale

Reuters News
Posted: Feb 03, 2016 10:51 AM

CHICAGO (Reuters) - The Chicago Board of Education tried to assure prospective investors in Wednesday's $875 million bond sale that revenue pledged to pay off the debt could continue to flow to them should the school district end up in bankruptcy court.

Legislation allowing the Chicago Public Schools (CPS) to file for Chapter 9 municipal bankruptcy was introduced in January with the backing of Illinois Governor Bruce Rauner.

Democrats who control the legislature have vowed to block the legislation.

In the event the measure becomes law and CPS files, the district in an updated bond document dated Tuesday said it believes its back-up pledge to tap property taxes to pay off the bonds would constitute "special revenues" that could only be used for bond payment.

It said, however, that there is no "binding judicial precedent dealing with facts similar to those supporting (the district's) position."

The third largest public school system in the United States also warned that state aid revenue, which will be tapped first for bond payment, and property taxes could be frozen by a federal bankruptcy court. Bond terms could also be altered.

On Wednesday, J.P. Morgan leads an underwriting team that would price the junk-rated general obligation bonds, which the district pulled from the municipal market a week ago amid investor skittishness over bankruptcy talk for CPS.

The district also disclosed that the Chicago Teachers Union rejected a contract offer on Monday. The move led CPS officials on Tuesday to announce actions to save $140 million for the current $5.7 billion budget in addition to $32.1 million in administrative cuts.

(Reporting By Karen Pierog; editing by Grant McCool)