Chicago's Emanuel Heads to Wall Street After Deal Postponedby
Mayor is meeting with credit rating companies in New York
Trip comes days after Chicago schools delayed $875m bond deal
Chicago Mayor Rahm Emanuel traveled to New York to meet with credit-rating companies after the city’s school district was hit by a third downgrade in a span of 15 days and didn’t complete a $875 million bond sale last week as its finances deteriorate.
The visit Monday came after the Chicago Board of Education postponed the securities offering on Jan. 27, saying some investors asked for more time to review it. Two days later, Moody’s Investors Service cut the board’s rating deeper into junk, citing its “increasingly precarious liquidity position and acute need for market access to support ongoing operations.” Fitch Ratings and Standard & Poor’s also downgraded CPS last month.
The meeting by the mayor and his finance officials was set to “update each agency on the recent financial reforms the city implemented as part of 2016 budget and the ongoing phase-out of the unsustainable financial practices of the past,” Molly Poppe, a city spokeswoman, said in an e-mailed statement. She called the visit a “long planned trip.”
Emanuel didn’t have any scheduled meetings with investors on Monday, Poppe said.
Chicago has a lower bond rating than any major U.S. city except for Detroit because of rising bills to workers’ pension funds that have been shortchanged for years. Chicago’s school system, whose finances are independent of the city, is contending with similar strain.
The school system has been reliant on borrowing to cover its budget deficits after drawing down reserves, making it crucial to maintain market access. School district officials said last week that they still expect to sell the bonds soon and that the delay wouldn’t cause it to miss any financial commitments.
The planned debt sale came after Illinois Governor Bruce Rauner, a Republican, called for the state to take over the district and potentially authorize bankruptcy, which currently isn’t allowed. That idea was immediately rejected by Democrats in control of the legislature and Emanuel, who have unsuccessfully pushed for an influx of state aid.
On Monday, Illinois’s secretary of education, who was appointed by Rauner in March, asked the state board of education to gather CPS’s financial data and identity potential candidates to oversee the district if the legislation is passed, according to a memo provided by a person close to the administration who asked not to be identified because they were not authorized to speak about the matter.
The school system’s $6 billion of outstanding debt has been lowered deeper into junk by three major credit companies in the last three weeks. The district has to put money into a fund to cover its debt payments on Feb. 15, and it planned to use some proceeds from the delayed deal to “support near-term debt service,” Moody’s said in its Jan. 29 report.
After the downgrade from Moody’s, the school system said it will receive property-tax receipts this month and has the ability to draw on $130 million in short-term financing that was authorized in December.
Ron DeNard, a senior vice president of finance for the schools, said in a statement that it plans to complete the bond offering this week. The decision to postpone it has “allowed additional investors to gain comfort” in the deal, he said.
On Monday, the Chicago Teachers Union said it had rejected the board’s latest contract proposal, which it had previously called a “serious offer.” The next step in negotiations is a fact-finding stage that can last as long as 105 days before a strike can occur.