Some worry Emanuel plea for rosy rating could backfire

Chicago Mayor asks Moody's to withdraw their poor rating. | Shutterstock

By S. Laney Griffo

Mar 12, 2017

Chicago Mayor Rahm Emanuel's request to Moody's Investors Services to reconsider the poor rating it gave the city has been met with concerns that if he gets his way, it could end up being worse for Chicago.

“If he’s successful, then bond purchasers get an overly optimistic, rosy scenario of the city’s problems, which just delays and confounds the problems to be resolved at a later date,” Mark Glennon, founder of the financial website Wirepoints told the Chicago City Wire.

Moody’s was hired to rate the city in 2014, and it downgraded the city’s general obligation debt, then gave it a junk rating in 2015. Emanuel wrote the agency a letter asking for it to rescind the rating, arguing that it had not taken his efforts into consideration and had exaggerated the risks to bondholders.

“While Chicago’s financial crisis is very real and at our doorsteps, today’s irresponsible decision by Moody’s to downgrade the city’s credit by two steps goes far beyond that reality,” Emanuel said. “Their decision was driven solely by the overturning of a state pension bill that did not include Chicago’s pension reform, yet they did not downgrade the State of Illinois.”

He called Moody’s "out of step with other rating agencies – by as many as six steps.”

Other city officials also have expressed outrage at Moody’s rating, including Chief Financial Officer Carole Brown.

Moody's spokesman David Jacobson said the agency would review the request but did not indicate what route the agency would take.

“If they do paint an overly rosy scenario, they are liable to be sued after the fact if things go bad,” Glennon said.

Besides the potential for any rating revision to backfire, Glennon said he also thinks it's wrong for Emanuel to try to persuade the agency to make a change.

“I think it’s totally inappropriate for city officials to be jawboning rating agencies into painting rosy pictures,” he said. “The conflict of interest is bad enough as it is because the rating agencies are hired by the city they have to rate. Rahm’s strategy is to deny, delay, pretend, extend. Jawboning the rating agencies into going easy on him facilitates those goals.”