CHICAGO — Chicago Public Schools distributed a draft copy of its fiscal 2015 financial statements to board members and its board voted to move ahead with two borrowing items to help keep the struggling district afloat.
While the district's comprehensive annual financial report is due in December, it has often been delayed. Its release was one of the formal reasons officials had given for their decision to push off a planned $1 billion new money and restructuring issue from November or December until January.
The district faces headwinds with potential investors because its pleas for $480 million of state pension funding help to balance its current budget have gone unanswered; a new consultant's report warns that the district will run of cash next month without the borrowing.
In addition to receiving the CAFR, the board Tuesday approved revisions to a previously approved bond resolution that authorized the district to tap $1.04 billion of $1.16 billion in general obligation borrowing authority. The district will now borrow the full amount. JPMorgan is senior manager.
In addition, the board approved the issuance of up to $195 million of tax anticipation notes to support a credit line. The board had previously approved tapping $65 million but the district now wants the full $195 million authorization.
The district's top finance officer, Ronald DeNard, said short-term borrowing was needed to bridge a delay in some state payments owed the district. He was asked by board members whether the Federal Reserve's decision to raise interest rates Wednesday would impact the district's expected rates and was quizzed over the district's level of additional borrowing capacity. He acknowledged the Federal Reserve's decision could impact the sale and said the district still has capacity but that it's not sustainable to continue borrowing.
"It is imperative that we put some of the actions we've talked about in place, whether they be cuts, or being more efficient or getting additional revenue sources," DeNard told board members. The school system's chief executive officer, Forrest Claypool, has warned of dire layoffs if the state doesn't come through with the requested assistance.
The warning on the district's cash flow crisis was outlined in a recent letter from consultant Ernst & Young LLP.
"The near-term cash flow shortfall is expected to be addressed by issuing additional debt, thereby further increasing CPS' liabilities and future debt service obligations," the letter said.
In addition to $150 million in state block grant payment delays, the consultants' letter further attributes the current cash crisis to the district's ongoing $1 billion structural deficit and the increased burden put on the operating fund to cover capital costs as a result of the bond sale's delay.
In addition to its use of credit lines, the district is deferring some large vendor payments to preserve cash. The district anticipates tens of millions in savings through administrative cuts under a planned reorganization and an additional $100 million in non-personnel cuts and efficiencies.
Proceeds of the bond issue will fund capital projects and push off $229 million in debt principal for budget relief. Another $275 million would go to convert floating-rate bonds to fixed and cover the cost of terminating interest-rate swaps now in default due to CPS' credit deterioration.
Moody's Investors Service, Fitch Ratings, and Standard & Poor's all have pushed the board's $6 billion of general obligation debt down to junk. S&P and Fitch have the rating on negative watch.
The district retains the lowest investment grade level rating from Kroll Bond Rating Agency.
The district has paid heavily to borrow and the rates are only expected to worsen. It paid a rate of 70% of one-month LIBOR plus 2.75% on a $250 million credit line and 3.25% on another. The top yield of 5.63% on the 25-year maturity in the district's April sale landed 285 basis points over the Municipal Market Data's triple-A benchmark.
