CHICAGO - Chicago may have some of the same fiscal ills as bankrupt Detroit but they their overall credit quality is very different, Standard & Poor's said in a report released Thursday.
Despite the similarity of pressures facing each city - from large pension burdens to budget deficits -- Chicago remains on solid credit footing, S&P says in the report which appears aimed at dispelling the notion raised by some "media commentators" that Chicago could be headed toward a similar fate in Chapter 9.
Standard & Poor's earlier this week affirmed Chicago's A-plus general obligation bond rating, and a negative outlook that stems from its mammoth pension obligations of $19.5 billion and a $600 million spike in annual contributions that looms in 2015. The agency warned the city could face a downgrade next year it turns to reserves to cover the payment hike or doesn't maintain a balanced budget.
"Our A-plus rating on Chicago's GO debt reflects our view of its overall solid credit quality, with support from a strong local economy," Standard & Poor's analyst Jane Hudson Ridley wrote in the special commentary, titled "Will Chicago Suffer Detroit's Fate?"
"We believe that Chicago's growing economy and taxing flexibility provide it with the resources to avoid a fate similar to Detroit's should it capitalize on this flexibility and remain on course," Ridley said.
The notes the default status on Detroit's general obligation debt. The agency shifted the city's rating to D after its payment default in October following its July bankruptcy filing.
The two cities do share the similar position of a "very weak" ranking in Standard & Poor's "budgetary performance and debt and contingent liabilities" category under its GO rating criteria. Chicago's position is due to stagnant revenue, which could deteriorate due to rising pension obligations. Both are also ranked as "very weak" in the debt and contingent liability categories, with 2012 debt service as a percent of total governmental fund expenditures at 12% in Chicago and 14% in Detroit.
Chicago heads to market as soon as next week with a $400 million general obligation sale, its first since being hit with triple-notch downgrades last year by Fitch Ratings and Moody's Investors Service over its pension crisis. Both rate the city at the A-minus level with a negative outlook.
The city's credit strengths include its strong and diverse economy, strong liquidity and strong management. The city retains $625 million in reserves from its asset leases, an amount that equals 20% of expenditures, Standard & Poor's said.
