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Chicago-area toll roads seek $280 million Build America bonds
Bloomberg News
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Published: 11/24/2009 8:13 AM | Updated: 11/24/2009 8:13 AM

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The Illinois Tollway, seeking to ease congestion on toll roads around the third most-populous U.S. metropolitan area, returns to the municipal market with a $280 million Build America Bond issue.

The Illinois State Toll Highway Authority plans to offer taxable bonds due in December 2034 today to complete debt financing on its 12-year, $6.1 billion traffic relief program for the Chicago region. The federal government will cover 35 percent of the interest cost.

States and municipalities have raised almost $55 billion for public works by selling Build America Bonds, or BABs, data compiled by Bloomberg show. If the program stays popular, it may help to keep long-term, tax-exempt bonds relatively scarce and stop yields from rising as much as those on Treasuries might, Morgan Stanley Smith Barney said in a report.

"Since BABs tend to be most effective on long maturities, we expect that the new supply of long-term tax-exempt munis will continue to be constrained," said George Friedlander, municipal strategist for the New York-based firm, in the report.

Top-rated tax-exempt bonds due in 30 years had a yield of 4.99 percent, the lowest in four weeks, based on a daily survey by Municipal Market Advisors of Concord, Massachusetts. The index hasn't risen above its March high of 5.38 percent since Build America offerings began in mid-April.

The toll agency's first Build America deal in May included $400 million of 6.184 percent bonds due in January 2034, priced to yield 200 basis points more than comparable-maturity Treasuries. A basis point is 0.01 percentage point.

The taxable tollway bond rose in price and fell in yield to 5.8 percent last week, JPMorgan Chase & Co. analysts said in a note to clients yesterday. The yield was 151 basis points more than benchmark U.S. debt and 27 basis points more than similarly rated corporate bonds, the firm said.

The debt, payable from net revenue of the Downers Grove, Illinois-based toll authority, carries the fourth-highest credit ratings: Aa3 from Moody's Investors Service and AA- from Standard & Poor's and Fitch Ratings. Underwriters led by Chicago-based Loop Capital Markets LLC will handle the deal.

The highway system, which has converted to electronic toll collection without booths on its four routes, plans to rebuild or restore the majority of its roads and add more lanes by 2016, according to its Web site. Chicago is the third-largest metro area in the U.S. after New York and Los Angeles.