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Fitch cuts Chicago’s credit rating

Chicago is refinancing $3 billion in debt. | Sun-Times file photo

Chicago’s credit rating was lowered Monday to one step above junk grade by Fitch Ratings.

In downgrading the city’s rating, Fitch cited the Illinois Supreme Court decision last week throwing out Mayor Rahm Emanuel’s reform plan for two city pensions.

Fitch lowered Chicago’s rating from “BBB+” to “BBB-.”

The agency called the court ruling “was among the worst of the possible outcomes for the city’s credit quality.”

“Not only did it strike down the pension reform legislation in its entirety, but it made clear that the city bears responsibility to fund the promised pension benefits, even if the pension funds become insolvent,” Fitch said in announcing the downgrade.

“The rating could stabilize at ‘BBB-‘ if the city presents a realistic plan that puts the pension funds on an affordable path toward solvency,” Fitch said. “The lack of such a plan would likely result in a downgrade.”

Lower credit ratings usually lead to higher borrowing costs.

In reaction to the downgrade, the city’s chief financial officer, Carole Brown, said in a statement: “Mayor Emanuel has demonstrated the resolve necessary to address our financial challenges head on and put Chicago on a path to long-term financial stability from passing the 2016 budget to converting the city’s variable-rate debt to fixed-rate debt,”

“The decision by the Illinois Supreme Court is disappointing, but the city’s ability to pay our debt and meet our current commitment to the pension funds has not changed.”