July 22--Chicago Public Schools' top attorney said Wednesday that the district is in talks with financial institutions over its outstanding debt, even as the school board was set to vote on the issuance of more than $1 billion in long-term bonds.
That bond issue would provide a contingency plan for CPS' grim finances absent help from state lawmakers, district officials said.
The district is preparing to present a 2016 budget that includes roughly $500 million in hoped-for help from Springfield. If that help doesn't come, the district will be faced with "a mix of unsustainable borrowing and additional cuts," interim district CEO Jesse Ruiz said Wednesday.
A portion of the money from the proposed bonds would go toward paying off $228 million in bills owed by the district since March, when, as a result of CPS' worsening credit, banks demanded repayment on decade-old interest-rate swap deals.
"We are, at this moment, in negotiations with a number of banks regarding swaps and the outstanding debt," CPS general counsel James Bebley said during a brief public hearing on the bond issue before Wednesday's regular school board meeting.
Bebley declined to elaborate, saying he did "not want to jeopardize the status of those negotiations."
Ginger Ostro, the school district's top financial officer, later gave additional details to school board members on how the $1.2 billion in bonds being voted on would be used.
--$600 million to $650 million would pay for infrastructure projects already in progress.
--$250 million to $300 million would replace variable-rate debt with fixed-rate debt, and any associated swap payments
--$150 million to $250 million to refinance the school district's existing debt to ease its budget pressures, a maneuver known as "scoop and toss" that puts off debt payments but increases their long-term cost
Refinancing the district's debt, Ostro told board members, "is an option we have to consider as we continue to work with Springfield to find a structural solution to our budget deficit."
"We have to make a contingency plan should we not get to that solution in time," she said. "This would be something that we might have to consider, again, if we don't have a solution. ... It's not a choice that we would want to make, but it's potentially something that we need to do, and therefore we are asking for authorization to do that."
The timing of the bond issues has not been finalized, Ostro said.
The district's swap contracts were part of complex borrowing deals from the early 2000s masterminded by outgoing board President David Vitale, who at the time was the district's chief administrative officer and then its chief operating officer. The swaps were paired with variable-rate bonds in an effort to stabilize interest payments and lower borrowing costs, but that plan carried risks.
Included in the swap contracts was a clause promising that the school district's credit would not deteriorate below an agreed-upon level. The school district already has paid off a portion of its $228 million liability but has not said how much.
Wednesday's school board meeting also provided an opportunity for Vitale to recognize the new schools leadership team unveiled by Mayor Rahm Emanuel last week.
Forrest Claypool, a longtime Emanuel operative and CPS' new chief executive officer, was at Wednesday's meeting. So was Frank Clark, a retired executive who is to replace Vitale as board president.
Newly appointed board members Gail Ward, Dominique Jordan Turner and Mark Furlong took spots at the board's podium. The Rev. Michael Garanzini, the retired chancellor of Loyola University, was absent.
jjperez@tribpub.com
