Kroll Bond Rating Agency said it downgraded the long term rating of the Board of Education of the city of Chicago's general obligation bonds to BBB-minus from BBB-plus and removed the rating from watch downgrade.
The outlook has been revised to negative.
KBRA's decision to downgrade the Board's general obligation rating is based on the structural imbalance in the adopted FY 2016 budget, which includes an unfunded budget gap of $480 million as well as significant reliance on non-recurring revenues from debt restructuring and use of reserves.
The rating action also reflects the Board's weak liquidity position projected for FY 2016 and the increased dependence on external cash flow borrowing to support operations.
While KBRA recognizes that there is increased momentum at the state level to develop a long term funding solution for Chicago Public Schools (CPS), it remains concerned as to timeliness and probability of action being taken to provide the funding needed to balance the FY 2016 budget.
KBRA views the potential for borrowing to balance operations in the absence of a funding solution from the state as a significant negative credit factor.
