Standard & Poor's Ratings Services said today it lowered its rating on Chicago's general obligation (GO) bonds to 'BBB+' from 'A-' and removed it from CreditWatch. The outlook is negative. We also assigned our 'BBB+' rating and negative outlook to the city's series 2015A tax-exempt and 2015B taxable GO bonds.
"The downgrade is based on our view of the city's structural imbalance, which we believe will necessitate the adoption of corrective budget measures over several years," said Standard & Poor's credit analyst John Kenward. "In our opinion, the city has not yet fully identified a credible plan to address the imbalance."
We removed the rating from CreditWatch because we view the city's short-term risks to variable-rate debt and unexpected liquidity pressures associated with several bank facilities and interest-rate swaps for variable-rate GO bonds to be resolved with the conversion of the variable-rate GO debt to fixed rate. We had placed the rating on CreditWatch with negative implications on May 14, 2015.
Standard & Poor's also lowered several other related ratings and removed them from CreditWatch:
The ratings on the city's series 2002B-3, B-4, and B-5 Neighborhoods Alive 21 GO bonds and series 2005D-2 GO bonds were lowered to 'BBB+' from 'AAA/A-1+'. The revised ratings reflect the bonds' conversion to fixed rate from variable rate and the termination of the associated bank facilities; The rating on the series 2005D-1 GO bonds was lowered to 'BBB+' from 'AAA/A-1' for the same reason.
When the bank facilities were in place, we rated the bonds based on our joint and several criteria, which no longer applies. The outlook is negative for the revised ratings.
We also withdrew our rating on the series 1998 Lakefront Millennium Park Project parking facilities bonds because these bonds are legally defeased.
We acknowledge that the city has successfully addressed its most immediate liquidity pressures stemming from a recent downgrade and that overall the debt profile is less vulnerable to liquidity triggers. However, we believe the city's overall credit quality is weakened by the delay of a specific and credible long-term structural plan.
The negative outlook reflects our concerns that the city has yet to solidify crucial policy decisions to address its growing police and fire pension contributions and incorporate them into the budget in a sustainable manner. Although we believe officials have options to do so, we believe implementation could face some hurdles. We could lower the rating further should city officials fail to identify a credible plan to address the growing budgetary imbalance within the next six months.
