Chicago's first junk-rating blow: $2.2 billion bank payout

Crain's Chicago Business reports:

Chicago may have to pay banks as much as $2.2 billion after Moody's Investors Service dropped its credit rating to junk, deepening the fiscal crisis in the third-largest U.S. city.

The company's decision Tuesday to cut Chicago's $8.1 billion of general obligations two ranks to Ba1, one step below investment grade, allows banks to demand that the city repay debt early and exposes it to fees to end swaps contracts, Moody's said in a statement. Mayor Rahm Emanuel plans to refinance $900 million of debt to reduce the penalties.


The downgrade adds to the financial pressure on Chicago, which was already the lowest-rated of any big U.S. city except Detroit. It follows an Illinois Supreme Court ruling last week that safeguards retirement benefits, casting doubt on Chicago's ability to curb its $20 billion pension-fund shortfall.

“It certainly becomes a wakeup call for action for the political leaders, and also other parties, to come to the table and find a solution,” said Dan Heckman, senior fixed-income strategist at U.S. Bank Wealth Management, which oversees about $128 billion in Kansas City, Missouri.

But, at least Chicago will have the Barack Obama library! That's something to feel good about.