|
"At this time, the city has not been informed
that the counterparties intend to accelerate payments and
termination fees, and we are working with our counterparties to
address any issues raised by Moody’s decision," a city source
said.
JP Morgan Chase & Co is Chicago's largest counterparty, with
$880.58 million in swaps and letters of credit connected to the
city, according to a March 6 city report. Wells Fargo & Co is
the second-largest, with $690.975 million in swaps and letters
of credit, while Bank of New York Mellon Corp is third, with
$336.885 million; Bank of America Corp next, with $276.835
million, and Barclays PLC the fifth-largest counterparty, with
$220 million.
Bank of America Merrill Lynch and Deutsche Bank AG declined to
comment on any negotiations with the city. BNY Mellon, US Bank,
Northern Trust Corp and Bank of Montreal were among several
banks that did not respond to requests for comment.
Moody's downgrade on Tuesday of Chicago's ratings gives banks
that provide credit support, or are counterparties on
interest-rate swaps, the right to demand Chicago pay a total of
$2.2 billion in accelerated principal, interest and termination
payments, according to the credit rating agency.
“Banks will approach accelerating on their swaps very
carefully,” said one banker who spoke on condition of anonymity.
“They know that if they enforce their rights, the city of
Chicago has many levers.” The banker said that making an enemy
of the city could be dangerous to a bank relying on it for
business.
The city hall source said Chicago is still pursuing efforts to
convert about $800 million of variable-rate general obligation
bonds to a fixed-rate mode starting later this month and
eliminate swaps used to hedge interest-rate risk.
Moody's pegged its rating action on the Illinois Supreme Court's
invalidation last week of a state pension reform law. The court
found the law violated a prohibition in the Illinois
constitution against reducing pension benefits.
Chicago faces a $300 million structural budget deficit and a
looming $550 million mandatory hike in pension contributions
beginning next year. A 2014 pension reform-law for two of its
four retirement systems also is being challenged in state court.
(Reporting by Karen Pierog; Additional reporting by Hilary Russ;
Editing by David Greising and Diane Craft)
[© 2015 Thomson Reuters. All rights
reserved.] Copyright 2015 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
 |
|
