|
Moody's Investors Service on Friday cut
Chicago's general obligation rating by one notch to Baa2 - a
level that allowed banks to end certain swaps the city uses to
hedge interest-rate risk on its variable-rate bonds.
Mayor Rahm Emanuel's office said the city late last week
renegotiated swap terms to avoid having to pay BMO Harris Bank [BMOHNA.UL]
a required $20 million termination fee. Negotiations with Wells
Fargo are ongoing over the remaining $40 million termination
fee.
Spokesmen for the banks declined to comment earlier on Tuesday
about the status of the swap agreements.
In its report on Friday, Moody's said the ratings downgrade to
just two steps above the junk level could trigger the immediate
termination of four swap agreements, costing the city about $58
million. It also noted that the downgrade to Baa2 moves the city
closer to termination of 11 more swaps deals. Termination on
those contracts would potentially cost Chicago an additional
$133 million, Moody's noted.
Emanuel's office said it inherited a debt portfolio four years
ago that included $2.6 billion of variable-rate bonds along with
swaps.
"Since day one in office, as part of his efforts to right the
city’s financial ship, the mayor has aggressively taken steps to
manage this portfolio, terminating seven swaps totaling more
than $1 billion, and renegotiating another 11 swaps valued at
$1.25 billion, substantially reducing taxpayer risk resulting
from these inherited swaps," the mayor's office said in a
statement.
Last week, Chicago's ratings of A-plus with Standard & Poor's
and A-minus with Fitch Ratings were affirmed. Negative outlooks
on the city's ratings with all three credit rating agencies
point to the possibility of future downgrades.
The finances of the nation's third-biggest city are sagging
under an unfunded pension liability Moody's has pegged at $32
billion and that is equal to eight times the city's operating
revenue. The city has a $300 million structural deficit in its
$3.53 billion operating budget and is required by an Illinois
law to boost the 2016 contribution to its police and fire
pension funds by $550 million.
Cost-saving reforms for the city's other two pension funds,
which face insolvency in a matter of years, are being challenged
in court by labor unions and retirees.
State funding due Chicago would drop by $210 million between
July 1 and the end of 2016 under a plan proposed by Illinois
Governor Bruce Rauner.
(Reporting By Karen Pierog; Editing by Jacqueline Wong)
[© 2015 Thomson Reuters. All rights
reserved.] Copyright 2015 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
 |
|
