[1/12/17] Chicago is stepping up its battle with Moody’s Investors Service ahead of a $1.2 billion bond sale next week.
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.
With its rating also downgraded by S&P and Fitch, Chicago has had to pay higher interest rates to bond investors, adding to its financial strain. A Chicago general-obligation bond maturing in 2026, one of the city’s most active securities, is showing a yield to worst of about 5.10 percent, nearly three percentage points more than benchmark debt, according to data compiled by Bloomberg.