Fitch Ratings said it has downgraded to B-plus from BB-plus approximately $6.1 billion of outstanding Chicago Board of Education unlimited tax general obligation (ULTGO) bonds.
Fitch said it assigned a B-plus rating to the following Chicago Board of Education ULTGO bonds: $795.5 million series 2016A; and $79.5 million taxable series 2016B.
The bonds are scheduled to sell the week of Jan. 25, via negotiation.
Proceeds will finance various capital projects, swap termination payments, reimbursements of reserves and short-term lines of credit used to pay swap termination payments, reimbursement of the general fund for prior capital advances, and the fixed rate refunding of variable rate debt.
The negative watch is removed, and a negative rating outlook is assigned.
The downgrade reflects the limited progress Chicago Public Schools (CPS) has made in addressing a structural budget gap approximating 20% of spending for the current fiscal year. Following substantial drawdowns in fiscal years 2013-2015, reserves will likely be fully depleted by the end of fiscal 2017.
CPS has a relatively inflexible expenditure profile and little to no independent ability to raise revenues. Substantial changes are necessary to support ongoing operating and fixed cost spending. Options within the board's control are limited absent meaningful solutions with other parties, which Fitch believes are unlikely in the near term.
Fitch will be monitoring access to external liquidity as internal cash and investments have been greatly diminished, requiring increasing levels of short-term borrowing to finance on-going operations.
Large pension liabilities were exacerbated by a three-year payment deferral that caused a dramatic jump in annual contributions beginning in fiscal 2014. Most options for relief are dependent on actions by the state, which is plagued by political disagreements and its own challenged financial position.
The last contract negotiation with the Chicago Teacher's Union (CTU) was highly acrimonious and involved a strike. Talks regarding a new agreement to replace the recently expired contract have so far yielded no resolution and the CTU has authorized another strike.