Goldman Chicago Bond Sale Leaves Bank Holding $75 Million in Unsold Debt

Goldman Chicago bond sale plans ran into choppy demand this week, leaving Goldman Sachs Group Inc. stuck with a sizeable piece of the city’s latest sales‑tax bond deal even after the bank sweetened yields. The shortfall underscores how Chicago’s budget tensions and softer municipal market conditions are weighing on an otherwise highly rated credit structure.

The $454 million offering, sold through the city’s Sales Tax Securitization Corporation (STSC), was meant to lower borrowing costs by refunding existing debt. While officials say that the objective was met, the price of getting the deal done was higher spreads, and about $75 million of bonds that Goldman had to keep on its own books.

Goldman Chicago Bond Sale Leaves $75 Million on the Table

According to a Chicago spokesperson, Goldman Sachs ended Wednesday’s Goldman Chicago bond sale holding roughly $75 million of unsold securities from the $454 million transaction. The bank had already increased yields from initial pre‑marketing levels to entice more buyers, but not enough orders came in to clear the full slate.

City officials emphasized that the refinancing still achieved its primary goal of reducing overall debt costs. They acknowledged, however, that final yields were adjusted from earlier indications to meet investor demand in a more challenging environment.

Goldman declined to comment on the outcome of the deal.

The negotiated Goldman Chicago bond sale landed on a crowded day for state and local borrowers, with almost $3 billion of municipal issuance slated across the market. That wave of supply, combined with recent fund outflows, created what one investor described as “soft” technical conditions, forcing issuers to pay up.

Budget Drama and Market Technicals Pressure Pricing

The Goldman Chicago bond sale also came against an unsettled political and fiscal backdrop at City Hall.

Chicago is staring at a nearly $1.2 billion budget gap for next year. Tensions between Mayor Brandon Johnson and the city council have escalated over how to close it, especially on the question of new taxes. On Monday, the council’s finance committee rejected Johnson’s revenue plan, blocking his broader budget proposal that sought higher levies on corporations and the ultra‑wealthy.

Those unresolved issues are never far from investors’ minds, even when they are buying bonds backed by dedicated revenue streams rather than the city’s general fund.

Dora Lee, director of research at Belle Haven Investments, which owns both Chicago general obligation and sales‑tax bonds in its roughly $22.9 billion muni portfolio, said the wider spreads on the Goldman Chicago bond sale were a clear reflection of that backdrop. She noted that the combination of budget uncertainty and recent mutual‑fund withdrawals “did result in slightly wider levels,” adding that it shows you can’t fully shield a bond from the borrower’s fundamentals, no matter how strong the structure.

Spreads Widen Despite Strong Sales-Tax Trend

On paper, the STSC bonds sold in the Goldman Chicago bond sale rest on a solid foundation. The corporation was created in 2017 to issue debt backed by a dedicated stream of city sales‑tax revenues collected by the state of Illinois. Senior‑lien bonds from the program carry a AAA rating from Fitch Ratings — six notches above Chicago’s A‑ general obligation grade.

Bond filings show that the tax base supporting these securities has grown over time. Annual city sales‑tax revenues climbed to about $869.7 million in 2022 and have continued to trend higher, even as the city wrestles with recurring deficits.

Yet investors still pushed for more compensation this time around.

Senior‑lien STSC bonds maturing in 2045 were priced 85 basis points above benchmark AAA municipal yields, according to data compiled from the offering. That penalty was notably wider than a similar deal nearly a year earlier, when 20‑year securities came at a spread of about 66 basis points.

Those numbers suggest that, despite the high rating and rising revenue backing the structure, the Goldman Chicago bond sale had to contend with a more skeptical tone in the market.

How Frequent Securitizations Shape Perception

Some analysts see a risk that repeated reliance on securitizations — whether backed by sales taxes or utilities — could eventually change how investors view even the strongest structures.

Mohammed Murad, head of municipal credit research at PT Asset Management LLC, said in an email that deals like the Goldman Chicago bond sale generally have solid fundamentals that can buffer them from broader credit concerns. But he cautioned that how often and in what manner such tools are used may begin to influence market perception over time.

Chicago’s decision years ago to separate its general obligation offerings from its sales‑tax‑backed bonds was meant to highlight the strength of the dedicated revenue pledge. Rating firms, however, still analyze the city’s finances holistically, including budget gaps, reserves and pension contributions, when setting their outlooks.

Second-Lien Bonds Also Pay Up

The pricing challenge in the Goldman Chicago bond sale was not limited to the highest‑rated portion of the deal.

Second‑lien bonds in the transaction, which are rated AA‑ by Fitch, also came to market at wider spreads than both initial price talk and last year’s sale. Debt maturing in 2042 was sold at a spread of 102 basis points over top‑rated benchmark securities. That was above the roughly 99‑basis‑point penalty floated in preliminary discussions, and much richer than the 73‑basis‑point spread paid on a 17‑year bond from the program last year.

For investors, those wider premiums represented an opportunity to pick up additional yield on a still‑strong credit. For the issuer and lead manager on the Goldman Chicago bond sale, they were the cost of doing business at a time when headlines around the city’s finances were hard to ignore.

Dan Solender, head of municipal investments at Lord Abbett & Co., whose $47 billion muni portfolio includes Chicago general obligations, said that even a structure with higher ratings is not immune to political and fiscal “noise.” The Goldman Chicago bond sale, he suggested, shows that investors continue to price in the risk that budget problems could eventually spill over, directly or indirectly.

Ratings Outlooks Turn Negative

The rating agencies’ latest actions have reinforced that sense of caution.

Fitch maintains a negative outlook on both the city of Chicago and the senior‑lien sales‑tax bonds, despite the AAA rating on the latter. S&P Global Ratings on Nov. 5 affirmed its A+ grade on the sales‑tax securities but also shifted the outlook to negative.

At the same time, S&P lowered the outlook on Chicago’s general obligation bonds to negative as well, citing ongoing budget gaps, thinner reserve levels, and a proposed reduction in next year’s supplemental pension contribution. Those concerns sit in the background of every Goldman Chicago bond sale discussion, even as the STSC structure seeks to stand on its own.

Against that backdrop, the fact that Goldman ultimately had to retain $75 million of bonds after boosting yields is a reminder that ratings alone are not the whole story. Market participants are weighing the city’s broader fiscal path and political will to address long‑running challenges.

What the Goldman Chicago Bond Sale Signals for Munis

For the municipal market, the Goldman Chicago bond sale offers several lessons.

First, even well‑regarded securitizations can see pricing drift wider when an issuer’s broader fiscal narrative is under strain. Second, supply dynamics and fund flows still matter: nearly $3 billion of deals hitting on the same day, amid recent outflows, meant buyers could afford to be choosy.

Finally, the transaction highlights how investors continue to differentiate within credits. While the STSC bonds retain strong ratings and rising pledged revenues, the city’s unresolved budget debate and negative outlooks from Fitch and S&P are keeping a ceiling on how tight spreads can go.

For Chicago, the refunding still lowered borrowing costs, achieving a key objective despite the hiccup. For Goldman, the $75 million of unsold bonds from the Goldman Chicago bond sale is a bet that, over time, yields will look attractive enough for more investors to come off the sidelines — or that market conditions will eventually validate the levels at which the bank chose to stand in.

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