Chicago plans to return to market March 10 with $800.29 million of general obligation bonds.
The Series 2026A and 2026B bonds are rated BBB-plus by Fitch Ratings and KBRA and BBB by S&P Global Ratings. The outlook from all three rating agencies is negative.
The deal follows twin
The GO bond deal comes at a fraught time for Chicago, with the mayor's office and the City Council trading blame over the recent downgrades and arguing over the implementation of a 2026 budget that the mayor refused to sign.
"A credit downgrade is not just symbolic; it indicates real financial consequences and long-term ramifications for not just the city but its residents," Civic Federation President Joe Ferguson said
"The downgrades reflect the very concerns the Civic Federation raised in
"A first step to regain public and market confidence would be to immediately begin implementing the
"This is a case where the market was ahead of the rating agencies," said Howard Cure, partner and director of municipal bond research at Evercore Wealth Management. "If you look at
Cure said while spreads have tightened a bit recently because of heightened demand, "Chicago, going into this, it's still the same issues… They used non-recurring revenues to balance their budget. They also had some untested revenues, like this whole debt collection issue," he said, referring to plans to sell uncollected city debts to debt collectors.
The bonds will pay for capital projects; finance retroactive pay increases for firefighters; fund police misconduct settlements; refinance one or more of the city's line of credit agreements; fund interest on the Series 2026 bonds; and pay costs of issuance, according to the investor presentation.
BofA Securities is the lead manager. The co-municipal advisors are PFM and Phoenix Capital Partners, and co-bond counsel are Chapman & Cutler LLP and Sanchez Daniels & Hoffman LLP, according to the preliminary official statement.
The deal includes $481.9 million of taxable Series 2026A bonds and $17.39 million of tax-exempt Series 2026B bonds.
It also includes $28.47 million of Series 2026C bonds; $116.8 million of Series 2026D bonds; $115.98 million of Series 2026E bonds; $13.5 million of Series 2026F bonds; and $26.19 million of taxable Series 2026G bonds.
The Series 2026A taxable bonds have a make-whole call and are serial bonds, like the Series 2026G taxable bond. The Series 2026B, C, D and F bonds are serial bonds. The Series 2026E bonds are term bonds, according to the investor presentation.
"A real red flag to me is the discipline to fund the pensions, and breaking up that advance payment," Cure said. "If they don't make this second payment, that's going to be a big problem for them."
The investor presentation stresses that Chicago is committed to its advance pension payment policy.
A few things stand out about next week's deal, said Justin Marlowe, research professor at the University of Chicago's Harris School of Public Policy and director of the Center for Municipal Finance.
"There is a feeling I think among some on City Council, and even some in the investor community, that some of this feels like a bait-and-switch," he said. "Especially the borrowing for firefighter back pay and police misconduct settlements. That was sold as a five-year deal," not a ten-year deal with a backloaded debt structure.
"Spreading it out over ten years makes it feel like we are now committing the cardinal sin of debt financing an operational need," he said, noting that at five years, it didn't necessarily feel that way.
"That in and of itself will probably elicit a reaction from the rating agencies at some point," he said. "It's as much about the structure as it is about the difference between what was sold and what is actually happening. That credibility gap is a concern among many in the market."
The way the deal is structured is also "completely out of sync with what the market wants right now," Marlowe said. "What Chicago's doing here is the opposite (of where the market demand is). It's putting out high coupons, long maturities, and pushing that debt service off into the future when it's going to be much more expensive."
Maybe Chicago just can't afford the debt service in the near term, he said, "but what it represents is a tremendous missed opportunity in this current market. The market is really eager for low-duration risk paper, and Chicago is not able to offer that up because the budget won't allow it."
While that lack of near-term budget flexibility is not entirely the fault of Chicago's current public officials, "the cost to continue doing business the way we've been doing business increases every year," Marlowe said.
"They inherited problems that have haunted Chicago for decades now," he said. "They have very limited options, but… the structural changes just haven't happened."
Cure noted the
"Any kind of unfunded mandate" is a problem, he said. "States do that to cities a lot, where states get the credit for helping some constituency, and the burden is on the city. … And then you have a governor who is definitely eyeing a presidential run. That is never good for a state; I've seen this happen a lot."
Federal funding is another major wild card; the potential cuts aimed at Chicago are "a sword of Damocles hanging over the city's head," he said.
"The next budget is critical," Cure said.
But the conflict between the City Council and Mayor Brandon Johnson shows no signs of abating, and that acrimony factored into the downgrades from Fitch and KBRA, Marlowe said.
"What was really startling about (the downgrades) was that nothing has really changed about Chicago's underlying financials. There's no new data on key indicators of the city's financial health," he said. "So these two rating agencies looked at everything else… It's a judgment call, but it's a judgment call that makes a lot of sense."
Eventually, "the other rating agencies are going to have no choice but to do their own downgrade," he said. "We have to start asking questions about the city's ability to maintain its investment-level rating… Absent some change, they can expect future downgrades."
Fitch's downgrade of the Sales Tax Securitization Corp. credit to AA-plus from AAA is also "something that we need to watch really carefully," Marlowe said. "There are some (investors) who clearly think Chicago has maxed out the STSC. At the same time, I know that there are investors who see it differently."
The STSC credit securitizes sales tax distributions to the city using a structure to keep it remote from the city's budget process, setting it up
"What we're going to learn very shortly is how many investors are in each of those camps, and how many have moved from the more optimistic to the less optimistic camp," he added. "If the narrative about the STSC shifts — from this is our gold-plated credit card, to this is just another tool that Chicago uses to manage an unsustainable debt load — then investor sentiment could shift very quickly."
Going forward, the mayor and the council need to heed the message the rating agencies are sending, Marlowe said, "which is that they need to find a way to work together."
The city's finance team did not respond to questions by press time.
The city has applied for ratings from Fitch, KBRA and S&P for the Series 2026C through G, according to the preliminary official statement.
