Fitch downgrades rating on Chicago bonds again

By Kathy Bergen
Posted Oct. 28, 2010 at 3:10 p.m.

Less than two weeks before Chicago plans to sell $804.3 million in bonds, Fitch Ratings downgraded the city’s bond rating for the second time in less than three months.

Fitch cited the city’s continued use of long-term financial reserves and other non-recurring revenues to patch budget deficits, its large and increasing unfunded pension liability and the high unemployment and foreclosure rates locally.

“The downgrade reflects the city’s weakened financial flexibility,” Fitch stated in the report it issued this afternoon.

The agency downgraded $7 billion in existing general obligation debt by one notch, from AA to AA-, the fourth rung down from the top AAA. And it assigned the AA- rating to Build America Bonds and refinancing bonds that are expected to be sold in a negotiated sale on Nov. 9.

This comes on the heels of another one-notch downgrade on Aug. 5, to AA from AA+.

The city’s new AA- rating remains within the high-quality category, but occupies the lowest rung in that grouping. Bond rating downgrades can lead to higher borrowing costs.

In its report today, Fitch also downgraded $331.5 million in outstanding sales tax revenue bonds by two notches, from AA+ to AA-.

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