CHICAGO - Standard & Poor's dropped the Chicago Board of Education's general obligation bond rating two notches to BBB and put it on CreditWatch negative.

"The downgrade reflects our view of the board's structural imbalance, the severity of which was demonstrated when the board made its $619 million pension payment the to the Public School Teachers' Pension and Retirement Fund of Chicago on June 30, 2015, with money borrowed from lines of credit," said Standard & Poor's analyst John Kenward. The board had earlier paid $15 million to the pension fund.

"The downgrade also reflects our view of the many challenges facing the board to maintain adequate liquidity and eventually make budgetary changes to restore fiscal balance.

The CreditWatch action reflects our view that the board's credit quality could deteriorate if the fiscal 2016 budget does not present a credible plan to improve the board's fiscal imbalance," he added.

The board's $6 billion of GO debt previously was rated A-minus with a negative outlook by the rating agency.

The credit score is two notches above a speculative grade. Moody's Investors Service in May stripped the Chicago Public Schools of its investment grade rating, lowering it three notches into junk territory at Ba3 with a negative outlook.

Fitch Ratings assigns the Chicago schools its lowest investment grade rating of BBB-minus with a negative outlook; Kroll Bond Rating Agency assigns a BBB-plus rating with a stable outlook.

Standard & Poor's action caps a week during which Chicago Public Schools and its struggle to make a $634 million payment to its teachers pensions fund by a June 30 deadline played out on at city hall, at the state capitol, and in the media.

CPS tapped a new $200 million tax anticipation note-backed credit line with JPMorgan and announced $200 million in cuts late Tuesday to make the full payment. Chicago Mayor Rahm Emanuel and school leaders warned on Wednesday of the need for state action on how the district's pensions are funded to save it from even deeper cuts.

The district faces a $1.1 billion budget deficit driven by a nearly $700 million pension payment in fiscal 2016.

The school district on Wednesday asked its teachers' pension fund consider a $500 million loan allowing it to defer some of its fiscal 2016 payments into 2017. The district has $9.5 billion of unfunded retirement obligations.



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