The Wall Street rating agency that stands alone in rating Chicago bonds as junk — and that threw cold water on Mayor Rahm Emanuel’s $8.7 billion O’Hare Airport expansion project — on Thursday delivered a double-dose of good news for a change.
Moody’s Investors raised the bond rating for the Chicago Public Schools one notch higher — from B3 to B2 — but still deep into junk status.
The rating agency also affirmed Chicago’s Ba1 rating, also junk, but revised the outlook from negative to stable.
The CPS upgrade is tied to a revised state funding formula, state pension help that produced a $450 million cash infusion and the General Assembly’s decision to grant the system “enhanced authority to levy property taxes.”
But, Moody’s warned that the rating would “continue to be constrained” by the district’s “still weak liquidity and high debt and pension burdens.”
The city’s outlook was raised to stable because the CPS burden has been lifted for the time being and because Emanuel’s five-year plan to boost contributions to Chicago’s “very high unfunded pension liabilities has so far proceeded on schedule.”
“A primary reason for Chicago’s negative outlook for the last two years was the heightened risk the city would need to provide financial assistance to the school district. With the increased state aid, that contingent risk has been reduced,” Moody’s wrote.
Still, Moody’s noted that the city “retains a very high and growing pension burden and has a very highly-leveraged tax base.”
The double dose of good news is unlikely to cool Emanuel’s running feud with Moody’s.
The mayor was so incensed by the junk bond rating, he asked Moody’s to stop rating Chicago’s bonds.
The tension only got worse when Moody’s branded the O’Hare project that Emanuel calls a game-changer credit negative because it will increase leverage and airline costs above those of airline peers, weakening O’Hare’s competitive position and profitability.