Moody's drops Chicago Board of Education rating deeper into 'junk'

[December 22, 2015]  CHICAGO, Dec 21 (Reuters) - Moody's Investors Service on Monday dropped the Chicago Board of Education's credit rating deeper into "junk" territory, citing the public school district's "precarious liquidity position."

The rating on $5.5 billion of the district's general obligation debt was lowered to B1 from Ba3, and Moody's warned that it is under review for a further downgrade.

The Chicago Public Schools "has increasingly relied on market access and cash flow borrowing to maintain ongoing operations," the credit rating agency said in a statement, adding that the downgrade also reflects the district's structurally imbalanced fiscal 2016 budget.

The nation's third-largest public school district is facing a cash shortfall next month and has approved new short- and long-term borrowings to raise operating funds. The district's $5.7 billion budget could also spring a $480 million hole if the state of Illinois does not substantially beef up its share of pension funding for the district, the state's biggest.

But help for the district remains entangled in an ongoing budget impasse between Republican Governor Bruce Rauner and Democrats who control the legislature.

Moody's noted that the district will have key credit challenges over the next 30 to 90 days, including the possibility that a $150 million state block grant due in January could be delayed. The district also faces a Feb. 15 deadline to deposit certain debt service payments with bond trustees and the possibility of a teachers' strike next year..

Both the Chicago Public Schools and the city of Chicago are struggling with escalating pension payments that have led Moody's to push their credit ratings into the junk level.

Chicago Public Schools' senior vice president of finance, Ron DeNard, said the district is in a precarious position due to its $1.1 billion structural budget deficit.

"We're continuing to make every effort toward balancing our budget, whether it's further streamlining central office or pursuing our fair share of funding from the state, which provides CPS with only 15 percent of its education funding despite our students making up 20 percent of the enrollment," DeNard said in a statement. (Reporting by Karen Pierog; Editing by Matthew Lewis and Leslie Adler)

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