- 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.
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