Fitch joins Moody’s in downgrading CPS debt to junk status

Less than a week after the Chicago Board of Education voted to borrow as much as $1.16 billion by selling bonds, another financial ratings agency has lowered its credit rating for the nation’s third-largest school system to “junk” status.

The move is another indicator the Chicago Public Schools will pay higher interest rates when planned bond sales occur in the coming months.

Fitch Ratings announced Monday it lowered its rating on CPS’ general obligation bond debt one notch, from ‘BBB-’ to ‘BB+’ with a negative watch. The move follows Moody’s Investors Service rating CPS’ debt at junk status in May.

In a news release, Fitch cited CPS’ $1.1 billion budget deficit for the 2015-16 school year, its reliance on borrowing money to pay for operations and its acrimonious relationship with the Chicago Teachers Union for the downgrade.

“Fitch believes the 2012 CTU strike made apparent the poor working relationship between the board and CTU,” the release said. “The agreement reached in 2012 expired June 30, 2015. Absent improvement, upcoming labor negotiations are likely to be challenging.”

Fitch also cited the district’s rising pension costs and its inability to broker a potential solution for that problem with state lawmakers in Springfield. School leaders already have announced layoffs and budget cuts to keep the district afloat.

“The district has tried to avoid cuts that would impact the classroom, but such cuts are growing increasingly likely,” the Fitch news release said.

CPS Chief Financial Officer Ginger Ostro said in a statement that Fitch’s analysis is a strong sign that state legislators need to work with school system on a solution to the financial crisis.

“As Fitch points out, CPS has limited options for addressing our $1.1 billion shortfall, which makes it even more critical to reach a comprehensive budget solution with our partners in Springfield,” Ostro said. “Our priority will continue to be working toward that broad solution so that we don’t have to make even deeper reductions or undertake more unsustainable borrowing.”