KBRA Places the City of Chicago, IL G.O. Bonds on Watch Downgrade; Assigns "A" Rating to the City's G.O. Bonds, Refunding Series 2024B and Taxable Refunding Series 2024C

KBRA places the City's G.O. Bond rating on Watch Downgrade and assigns a long-term rating of "A" to the City of Chicago’s General Obligation Bonds, Refunding Series 2024B and Taxable Refunding Series 2024C. The Watch Downgrade reflects the mounting fiscal challenges confronting the City in light of a $982.4 million projected 2025 Corporate Fund budgetary shortfall. KBRA expects to resolve the Watch status by early January 2025, pending the outcome of budget deliberations by the Chicago City Council.

Concurrently, KBRA affirms the long-term rating of "A" on the City's outstanding General Obligation Bonds.

Key Credit Considerations

The rating actions reflect the following key credit considerations:

Credit Positives

• The City’s regional significance is reflected in its substantial tax base and large, diverse economic base.
• Ample available reserve balances supplement the City’s General Fund reserves and liquidity position.

Credit Challenges

• Reliance on temporary, one-time gap closing measures perpetuates structural imbalance and risks compounding outyear costs.
• The increased fixed asset burden of actuarially scheduled pension funding risks crowding out other Corporate Fund spending unless additional long-term funding sources are identified.
• Continued reliance on economically sensitive revenue sources poses ongoing budgetary uncertainty.
• The delayed start of the annual budget process leaves only weeks to address a large budgetary shortfall.

Rating Sensitivities

For Upgrade

• Long-term revenue enhancements and spending reforms that address the City’s growing structural budget gap.
• Dedication of specific revenues (in lieu of one-time assigned fund balance) to achieve actuarial pension funding requirements.
• Improved debt ratios, reflecting a sustained moderation of borrowing by the City and overlapping jurisdictions and the continued expansion of the resource base.

For Downgrade

• A FY 2025 Budget which does not sufficiently address the structural deficit, including an over reliance on non-recurring revenues or expense savings.
• Continued reliance on one-time solutions to achieve budgetary balance.
• Use of Chicago Skyway and parking meter asset and concession lease reserves to offset budgetary gaps.
• Failure to adhere to established financial and debt policies.

To access ratings and relevant documents, click here.

Methodologies

• Public Finance: U.S. Local Government General Obligation Rating Methodology
• ESG Global Rating Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Only those ratings on securities issued by this Issuer that also are denoted on the Security Ratings tab for this Issuer on KBRA.com as “endorsed” by Kroll Bond Rating Agency Europe Limited into the European Union and/or by Kroll Bond Rating Agency UK Limited into the UK are covered by the disclosures set forth in this press release and the corresponding Information Disclosure Form. No other ratings on issuances by this Issuer have been endorsed into the European Union or the UK, and the disclosures set forth herein and in the corresponding Information Disclosure Form are inapplicable to those ratings and may not be used for regulatory purposes by European Union or UK investors in these securities.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

Doc ID: 1006765

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