The Roman Catholic Archdiocese of Chicago lost its investment-grade rating from Moody’s Investors Service after a three-notch cut that’s due to the growing use of bankruptcy among its counterparts to deal with sexual abuse settlement costs.
The three-notch cut to Ba1 from Baa1 Wednesday followed a
“The downgrade to Ba1 is largely driven by our view of escalating core social and business risks across the sector driven in large part by sexual abuse claims leading to an increasing trend of preemptive bankruptcy,” Moody’s said.
The Chicago Archdiocese enjoys a sound balance sheet but other Chapter 11 filings have “not correlated with the soundness of financial operations, balance sheets and other credit fundamentals.”
The rating remains supported by the archdiocese’ financial reserves, scale, and strong management, which provide “significant capacity to manage currently known exposures.”
The archdiocese has laid out well-defined plans for addressing financial risk associated with sexual abuse cases as well as the coronavirus pandemic that have hurt church collections. Moody’s considers the management team’s transparency a supportive credit feature. The archdiocese benefits from a strong financial balance sheet with $1.1 billion of cash and investments.
But those strengths don’t offset worries as the archdiocese remains the subject of an ongoing Illinois Attorney General probe that could add to the financial burden. The attorney general is looking into all six Illinois dioceses' historical treatment of claims of priest sexual misconduct.
The archdiocese last year reported settlements of legal claims for $41 million in fiscal 2017 and $19 million in 2018. Gov. J.B. Pritzker last year signed legislation that eliminates the statute of limitations on cases for criminal sexual assault, aggravated criminal sexual assault and aggravated criminal sexual abuse. The archdiocese has so far only been subject to civil cases.
“While current projections of sexual misconduct claims, which arise from decades-old alleged incidents, appear to be manageable, their full impact and their implications for defensive filing introduce an element of unpredictability, limiting the rating,” Moody’s said.
The notes are a general obligation of the Catholic Bishop of Chicago, with the designated group supporting repayment made up of the Archdiocese of Chicago Pastoral Center and Catholic Cemeteries. CBC can access other funds as available to meet debt service.
CBC also has a $40 million bank loan, supported by a real estate proceeds account. CBC must deposit into a segregated fund proceeds from any real estate sales while the principal is outstanding. It matures in January 2022.
The archdiocese was established in 1845. It is the third largest in the country and serves more than 2.2 million Catholics in 316 parishes in Cook and Lake Counties. The archdiocese is led by Cardinal Blase J. Cupich. The archdiocese's 205 elementary and secondary schools make up one of the largest U.S. private school systems.
An archdiocese representative didn't immediately respond to an emailed request for comment.
The archdiocese could win back its investment-grade rating through mitigation of litigation exposure and demonstrated ability to manage potential escalation of self-insurance claims and if the AG probe is concluded with no material rise in expected claims, the rating agency said.
Moody’s had attributed the May rating hit the financial weight of sexual misconduct claims, the economic impact of the COVID-19 pandemic and concerns about the rising number of archdiocese bankruptcies.
Moody’s currently rates three archdioceses — Chicago, Phoenix, and New Orleans, said Moody’s spokesman David Jacobson.
Phoenix was cut in November to Ba2 from Baa3 and assigned a stable outlook. The action impacted $25 million of debt. The state of Arizona passed legislation in May 2019 extending the statute of limitations for victims of childhood sexual abuse to sue in civil court to age 30. The legislation also provided a "window" for those over 30 to sue in civil court until Dec. 31, 2020.
The New Orleans Archdiocese, which
A total of 30 Catholic dioceses and religious orders have filed for bankruptcy protection including 26 dioceses and three orders, according to various websites.
As of October, six diocese/archdiocese have filed for bankruptcy in 2020, Moody’s said.
The Diocese of Rockville Centre, in New York, and Camden, in New Jersey, are the most recent to file bankruptcy. They filed in October as they grapple with abuse lawsuits.
