Chicago Credit Rating Cut by Moody’s to Two Steps Above Junk
by Brian ChappattaElizabeth Campbell
8:09 AM EST February 27, 2015
(Bloomberg) -- Chicago had its credit rating cut to within two steps of junk by Moodys Investors Service because of mounting pension liabilities, underscoring the citys fiscal stress as Mayor Rahm Emanuel faces an unprecedented runoff election.
The one-step reduction to Baa2 affects $8.3 billion of general-obligation bonds, which were already the lowest-rated among the 90 biggest U.S. cities, excluding Detroit. The outlook remains negative, signaling more cuts are possible, New York-based Moodys said Friday in a report.
The citys credit quality could weaken as unfunded pension liabilities grow and exert increased pressure on the citys operating budget, Moodys analysts Matthew Butler and Rachel Cortez wrote. We expect substantial growth in unfunded pension liabilities even if the citys recent pension reforms survive an ongoing legal challenge.
Chicago is obligated to pay $600 million into four pension funds in next years budget, though Standard & Poors said the contribution may be delayed after Feb. 24 elections led to an unexpected runoff vote between Emanuel and Jesus Chuy Garcia. The former White House chief of staff failed to capture more than 50 percent of the vote.
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http://www.bloomberg.com/news/articles/2015-02-27/chicago-credit-rating-dropped-by-moody-s-to-two-steps-above-junk