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Another Detroit in the making? Moody's downgrades Chicago another notch

Feb. 28, 2015 7:45 AM ETMUB, TFI, CMF, PZA, SHM, ITM, MLN, HYD, BAB, MUNI, BABS, HYMB, XMPTBy: Carl Surran, SA News Editor45 Comments
  • Chicago's credit rating was downgraded Friday by Moody's to Baa2, two notches above junk, with a negative outlook on the “expectation that the city’s credit quality could weaken as unfunded pension liabilities grow and exert increased pressure on the city’s operating budget."
  • Chicago's four pension funds have ~$20B in unfunded debt, and without further action the city would need to increase its payments to those accounts by $600M next year and even more after that.
  • The rating includes the city’s $8.3B billion of outstanding GO debt, $542M of outstanding sales tax revenue debt, and $268M of outstanding or authorized motor fuel tax revenue debt.
  • The downgrade could immediately terminate four interest rate swap agreements, costing the city ~$58M, and potentially lead to terminations of 11 more swaps deals that could cost another $133M.
  • Also yesterday, S&P warned it could slap its own multi-notch downgrade on Chicago in the absence of a plan this year to deal with the pension crisis.
  • It's all another big headache for Mayor Rahm Emanuel, who is facing a surprise run-off in his bid for re-election.
  • Muni ETFs: MUB, HYD, BAB, PZA, MUNI, TFI, ITM, HYMB, MLN, CMF, SHM, BABS, XMPT

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