Chicago bond rating scraping bottom when compared with other major U.S. cities
Chicago lies at the bottom of a list of the 15 largest U.S. cities in terms of its bond rating, the Wall Street rating agency Standard & Poor's said recently.
Chicago's rating remains at BBB-plus, while all of the other cities had ratings of AA-minus or better. The city's rating remains stuck near "junk" bond status despite attempts by Mayor Rahm Emanuel to get another ratings agency, Moody's, to reconsider its rating in light of his effort to shore up the city's staggering debt burden.
Emanuel enacted a record tax increase and argued that the rating had a misinformed view of the city’s overall financial outlook.
The poor rating has been financially devastating to the city, as it has meant higher interest rates for current bond investors. In fact, Chicago has stopped relying on Moody's for bond deal ratings, instead using S&P Global Ratings and Fitch Ratings.
“The thing about these ratings is they are only an opinion,” Richard Ciccarone, CEO and president of Merritt Research Services, told Chicago City Wire. “In the end, the market will set a price based on its own input. For sure, ratings have some public influence and in some ways set a benchmark, but they are only opinions.”
Detroit and Chicago were the only major cities saddled with a junk rating in 2015. That dubious distinction came after Moody’s downgraded Chicago's rating because of spiraling pension bills triggered by years of failing to set aside ample resources needed to cover promised benefits.
With the city further crippled by a negative outlook, it’s conceivable that the rating could be downgraded even more.
A spokesperson for Moody’s is on record as saying the company has a process for determining requests like the one Emanuel made, but it does not directly comment on any potential actions.
“Conservative investors would have to be cautious,” Ciccarone said. “The city has made some great progress over the last year or so, but at the same time there are still open questions. At this level, many of the investors aren’t just relying on the agency’s findings.”