Chicago Faces $58 Million Payment Due to Moody's Credit Rating Cut

Strategic Insights -

Chicago's mounting pension liabilities and decreased credit rating have put the city in a precarious financial position. As a result of Moody's Investors Service cutting the city's credit rating to Baa2, the city may have to pay $58 million to unwind interest-rate swaps. This development comes as Mayor Rahm Emanuel faces a runoff election, underscoring the city's fiscal stress. The rating cut affects $8.3 billion of general-obligation bonds, which are the lowest-rated among the 90 biggest U.S. cities, excluding Detroit.

Key Takeaways:

  • Chicago may have to pay $58 million to unwind interest-rate swaps due to Moody's credit rating cut.
  • The city's credit rating was cut from Aa2 to Baa2, affecting $8.3 billion of general-obligation bonds.
  • The rating cut may terminate four swap contracts early, triggering the $58 million payment.
  • Chicago is closer to ratings that may force an additional $133 million of payments.
  • The city has $20 billion in unfunded pension obligations that cannot be addressed without state legislative approval.
  • Mayor Rahm Emanuel faces a runoff election, which may impact the city's financial position.
  • Key players:

+ Laurence Msall, president of the Civic Federation

+ Kelley Quinn, Emanuel's spokeswoman

+ Andrew Sharp, Garcia's campaign manager

  • Organizations mentioned:

+ Civic Federation

+ Moody's Investors Service

+ Fitch Ratings

+ Standard & Poor's

+ Illinois state government

Statistics:

  • $58 million: Potential payment to unwind interest-rate swaps
  • $8.3 billion: Value of general-obligation bonds affected by the credit rating cut
  • $20 billion: Unfunded pension obligations in the city
  • $600 million: City's contribution to four pension funds in next year's budget
  • 90: Number of cities in the U.S. with similar bond ratings
  • 2.7 million: Population of Chicago
  • 15: Number of interest-rate swap agreements tied to variable-rate general-obligation debt

Sources:

  • Moody's Investors Service
  • Civic Federation
  • Chicago Mayor Rahm Emanuel's office
  • Jesus "Chuy" Garcia's campaign
  • Illinois state government
  • Fitch Ratings
  • Standard & Poor's