Uncertainty over the ultimate cost of sexual misconduct claims for the Catholic Archdiocese of Chicago was a factor as Moody’s Investors Service revised its outlook to negative.
Moody’s Wednesday revised the outlook on privately placed 2012 and 2013 notes totaling $137 million from stable. It affirmed the Catholic Bishop of Chicago’s A1 rating.
“The negative outlook reflects the uncertain impact on the archdiocese's cash and investments from settlement of current sexual misconduct claims or the emergence of a new claims that could materially reduce financial reserves,” Moody’s wrote. “It also reflects still thin operating performance and possible pressures on operations from other parish activities.”
The archdiocese reported settlements of legal claims for $41 million in fiscal 2017 and $19 million in 2018. Following the ongoing disclosure of misconduct claims in other dioceses, the Chicago Archdiocese too has seen additional claims filed since its June 30, 2018 fiscal year-end.
“The timing of resolution and ultimate impact of these new claims remains uncertain,” Moody’s said.
"The Moody’s rating recognizes the progress the Archdiocese of Chicago has made in stabilizing its finances and the significant headwinds we face due to misconduct settlements, the declining size of our congregation and other factors," said Anne Maselli, spokeswoman for the archdiocese.
Adding to future uncertainty of claims both on the archdiocese's balance sheet and reputation that could impact collections is an ongoing state probe and recently signed legislation.
Gov. J.B. Pritzker in July signed legislation that eliminates the statute of limitations on cases for criminal sexual assault, aggravated criminal sexual assault and aggravated criminal sexual abuse. The archdiocese has so far only been subject to civil cases.
A probe launched by former Attorney General Lisa Madigan continues under new AG Kwame Raoul into all six Illinois dioceses' historical treatment of claims of priest sexual misconduct.
“Although CBC is a national leader of the Catholic dioceses in implementing policies and procedures regarding misconduct, the outcome and timing of the investigation's completion is not known,” Moody’s wrote.
For the time being, the rating remains supported by robust cash and investments and high liquidity with $1.05 billion of cash and investments and $562 million of monthly liquidity or 638 days of operations.
“This provides operating flexibility and a platform to cope with the recent emergence of new misconduct claims,” Moody’s said.
The rating also benefits from good governance and management practices with an eye on measures that will improve core operations. That includes reviewing parishes and schools across the archdiocese for financial sustainability or closure.
But those strengths are tempered by thin operating performance with rising expenses that also covers pensions and resulted in weaker operating performance with operating cash flow margins at less than 6% for both fiscal 2017 and 2018.
“CBC currently projects some improvement in fiscal 2019 ending June 30 but final results are subject to adjustments in insurance reserves and other accruals,” Moody’s said.
The debt is a general obligation of the Catholic Bishop of Chicago. The designated group is comprised of the Archdiocese of Chicago Pastoral Center and Catholic Cemeteries for the primary source of repayment.
CBC can access other funds as available to meet debt service on the notes. There is a debt service reserve fund equal to one year of payments for each series, totaling $11.6 million. CBC has a $75 million bank liquidity facility with currently $40 million outstanding.
The archdiocese, established in 1845, is one of the largest among the 195 nationally with 2.2 million Catholic members. It includes 336 parishes and 46 cemeteries, 176 elementary schools and 33 secondary schools with enrollment of nearly 72,000 students.
