Chicago Credit Rating Cut by Moody’s to Two Steps Above Junk [View all]

[Purveyor]

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 Moody’s Investors Service because of mounting pension liabilities, underscoring the city’s 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 Moody’s said Friday in a report.

“The city’s credit quality could weaken as unfunded pension liabilities grow and exert increased pressure on the city’s operating budget,” Moody’s analysts Matthew Butler and Rachel Cortez wrote. “We expect substantial growth in unfunded pension liabilities even if the city’s recent pension reforms survive an ongoing legal challenge.”

Chicago is obligated to pay $600 million into four pension funds in next year’s budget, though Standard & Poor’s 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.

more...

http://www.bloomberg.com/news/articles/2015-02-27/chicago-credit-rating-dropped-by-moody-s-to-two-steps-above-junk