CHICAGO - Moody's Investors Service said something nice about Chicago credit.

The rating agency, which downgraded the Windy City to speculative-grade Ba1 in May, labeled the city's shift of its floating-rate general obligation and sales tax paper to a fixed-rate as a credit positive.

Moody's made the comment in its weekly outlook released June 12. It highlighted the city's completion of the conversion over the last few weeks of $800 million of floating-rate general obligation paper and $112 million sales tax paper to a fixed-rate.

"The actions are credit positive because they reduce Chicago's exposure to the liquidity risks associated with variable rate debt structures, credit support agreements and other forms of debt subject to refinancing risk," Moody's wrote.

In conjunction with the conversion, Chicago made $200 million of swap termination payments on the GOs and expects to terminate a sales tax swap with sales tax receipts. The city tapped its short term borrowing program to cover the $200 million and an additional $130 million to cover a portion of the GO conversion.

The city intends to move that debt into a long term, fixed-rate structure early this summer.

The GO and sales tax conversions shed 12 letters of credit and a standby bond purchase agreement. Moody's downgrade triggered default events that allowed banks to demand repayment of debt supported by the banking agreements as well as its credit lines. Negative swap valuations and additional downgrades of the city's water and wastewater credits pushed up to $2.2 billion the amount of debt the city could have been forced to repay.

Chicago reached forbearance agreements staving a demand for repayment on all of the GO and sales tax credit support. The city has not disclosed the status of default events tied to more than $400 million of sewer and water debt.

The report also outlines the city's remaining floating-rate exposure tied to its water, sewer, and airport credits. Chicago's variable-rate debt portfolio is now limited to $456 million of second lien water revenue bonds, $332 million of second lien sewer revenue bonds and $518 million of airport revenue bonds. Variable rate bonds comprise 20%, 21% and 6% of total outstanding water, sewer and airport revenue debt, respectively, Moody's said.

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