Moody's Investors Service said it has downgraded the rating on the Metropolitan Water Reclamation District of Greater Chicago's general obligation unlimited (GOULT) and limited tax (GOLT) bonds to Aa1 from Aaa, affecting $2.6 billion of GO debt outstanding.

The outlook has been revised to negative.

Debt service on the district's GOULT bonds are secured by a dedicated property tax levy unlimited by rate or amount. Debt service on the district's GOLT bonds is secured by the district's Debt Service Extension Base (DSEB) which is a property tax levy limited by amount but unlimited as to rate. The GOLT bonds are rated on parity with the GOULT bonds because the DSEB provides levy provides full coverage of GOLT debt service.

The downgrade of the GO rating reflects the district's outsized pension liabilities which have grown due to contribution levels that have fallen short of actuarial standards.

The downgrade also reflects the significant debt burden and pension liabilities of overlapping entities, particularly the city of Chicago (GO rated A3/negative outlook), which represents half of the district's tax base.

These considerations are balanced by the district's credit strengths, including a large tax base that comprises the second most populous district in the nation, inclusive of numerous communities with strong demographic profiles; strong financial operations characterized by ample reserve levels with available alternate liquidity; and a strong management team that continues to implement best practices across all lines of business.

Additionally, the Aa1 rating reflects the district's promotion of pension reform that was recently passed by the Illinois General Assembly.

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