Chicago Mayor Emanuel Pushes Moody's To Rescind Junk Rating Ahead Of $1.2 Billion New Issue

One week before Chicago is set to sale $1.2 billion in new debt, it has been revealed that Mayor Rahm Emanuel has been putting pressure on Moody's, the only rating agency to have a junk-rating on the city's general obligation debt, to rescind their rating.  According to a letter Emanuel sent to the CEO of Moody's, the Chicago Mayor has grown concerned that the "Moody’s rating methodology and agenda are far from objective and independent."  Per Bloomberg:

Mayor Rahm Emanuel, a Democrat who pushed through a record tax increase to shore up the city’s finances, asked the company to pull its junk rating on Chicago’s debt, saying it’s exaggerating the risks to bondholders and failing to recognize steps he’s taken. Chicago has already stopped hiring Moody’s to rate new bond deals, relying instead on rivals S&P Global Ratings and Fitch Ratings that continue to consider its debt investment grade.

 

“It has become increasingly clear that Moody’s rating methodology and agenda are far from objective and independent,” Emanuel said in a Dec. 8 letter to Moody’s Chief Executive Officer Raymond McDaniel that was released by the city. “Your current rating does not accurately reflect the city’s credit or our ability to pay debt service when due.”

 

Chicago became the only major U.S. city outside of Detroit with a junk rating in 2015, when Moody’s downgraded it because of the escalating pension bills triggered by years of failing to set aside enough money to cover promised benefits.

Moody's is currently the only rating agency with a junk rating on Chicago's G.O. debt, Fitch is only 1 notch away with a BBB- rating, while S&P remains at BBB+.

Chicago Ratings

 

And while Emanuel would like for everyone to believe that Moody's "flawed" rating methodology is the only thing pushing Chicago's debt spreads higher...

Chicago GO

 

...we suspect that the city's massive budget deficits and underfunded pension liabilities may have a little more to do with it. 

And while we would never dare challenge the financial literacy of Chicago's esteemed mayor, a $5.4 billion deficit, when the city only generates $8.9 billion of annual tax revenue, would seem, at least to us, to be a slight problem.  Of course, we acknowledge that Democrats are known for their ability to raise taxes, but somehow we suspect they may object to the 60% across-the-board increase that would be required to close that budget gap.  Per the City Of Chicago:

Chicago IS

 

Moreover, we suspect that Moody's may have also been concerned with this lovely chart from the City of Chicago's Investor Presentation.  Certainly, a pension funding ratio that has declined pretty much every year for the past 15 years is not the sort of thing that inspires an investment grade rating.  And, while a mere $22.5 billion underfunding may not seem like such a big deal to Rahm, we doubt that Chicago's 1mm households are anxious to fork over $22,500 each to fill that gap.

Chicago Pension

 

And not to beat a dead horse, but nearly $1 billion of G.O. fixed charges every year, or 11% of your annual revenue, is also not stellar. 

Chicago Debt Services

 

But sure, Rahm, Moody's probably just has a personal vendetta against you.  We're sure that the 1 resident your state is losing every 4.6 minutes also has absolutely nothing to do with the fact that your city is on the verge of bankruptcy.

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