Chicago Catholic Archdiocese rating slashed on mounting fiscal strains
Already under strain from the financial weight of sexual misconduct claims, the Catholic Archdiocese of Chicago took a three-notch downgrade from Moody’s Investors Service reflecting the economic impact of the COVID-19 pandemic and concerns about the rising number of archdiocese bankruptcies.
Moody’s lowered the rating this week to Baa1 from A1 and assigned a stable outlook. The rating agency had last year revised the outlook to negative from stable due in large part to uncertainty over the ultimate cost of sexual misconduct claims.
Moody’s rates $136 million of 2012 and 2013 notes issued by the archdiocese, whose formal borrower name is the Catholic Bishop of Chicago.
The downgrade “reflects the escalation of core social and business risks for a particular sector that has seen a substantial and now recently increasing trend of preemptive bankruptcy, even when financial operations, balance sheets and other credit fundamentals are sound,” Moody’s said.
At least 27 Catholic religious organizations have sought bankruptcy protection in Chapter 11, according to Penn State Law.
The Chicago archdiocese continues to see a rising number of priest sex abuse claims that drove the 2019 outlook change. The pandemic adds operational and financial pressures.
“While the archdiocese has a long history of managing many of these exposures, it is not immune from rising financial risks,” Moody’s said. “The rapid and widening spread of the coronavirus outbreak and deteriorating global economic outlook are creating a severe and extensive credit shock, with risks to the downside.”
The archdiocese’s rating benefits from its management's “well defined” plans for addressing financial exposures, its transparency, and its strong financial balance sheet with $1.1 billion of cash and investments.
“CBC's relatively large scale and investment portfolio provides operating flexibility and a platform to cope with the recent emergence of new misconduct claims and the operational impact related to the coronavirus pandemic,” Moody’s said.
Masses were halted and churches shuttered in mid-March as the COVID-19 public health crisis grew and Gov. J.B. Pritzker shut down large gatherings and later issued a stay-at-home order. The archdiocese last month estimated an eight-week impact of the loss of offertory envelopes donated at masses at up to $45 million.
Earlier this month Catholic archdioceses in Illinois announced plans to phase in re-opening of churches and to hold some, small limited services after Pritzker opened the door for small church-based gatherings by classifying “free exercise of religion” as an essential activity April 30.
All regions of the state are on course to move next week into phase three of Pritzker’s reopening plan but large gatherings such as traditional masses can’t be held until phase four which could occur next month based on the state’s cases and testing.
Recent efforts to manage expenses and improve core operations helps the archdiocese absorb the impact of projected revenue declines over the next several months and management continues to review parishes and schools across the archdiocese for financial sustainability.
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. The Illinois attorney general is also looking into all six Illinois dioceses' historical treatment of claims of priest sexual misconduct.
Current projections on the costs of sexual abuse claims are manageable but Moody’s cautioned that the full impact and magnitude remains unclear.
The notes are a general obligation of the CBC 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 on 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.