May 16--Another ratings agency bumped down the city's creditworthiness on Friday but indicated the city is in better shape than the junk status assigned earlier this week by Moody's Investors Service would suggest.
Fitch Ratings set the city's debt rating at three notches above junk status, meaning the agency believes the risk is low that the city will default on its more than $8 billion worth of taxpayer-backed debt.
Moody's downgraded the city Tuesday to junk status -- a level it defines as carrying "substantial credit risk." The agency cited last week's Illinois Supreme Court decision to strike down a plan designed to reduce state pension costs, saying it suggests the city has limited options for curbing the growth of its own pension debt.
Fitch took a different approach, saying in a statement that it "does not believe that the Supreme Court decision has a direct effect on the prospects for the city's enacted pension reform, which relies on a different legal argument."
Lois Scott, the city's outgoing chief financial officer, said in a statement Friday that Fitch also "recognizes that the City has many strengths -- from its role as an economic hub for the Midwest to improving employment and adequate reserves -- to address the challenges it faces."
Like Standard Poor's, which downgraded the city Thursday to four notches above junk status, Fitch Ratings noted that the junk status rating has complicated the city's financial situation. Without mentioning Moody's by name, the Fitch statement noted that the rating gives banks the option to demand repayment of a large chunk of its debt and other outstanding obligations -- an amount that, according to the city, totals $2.2 billion.
The city's plan to avoid repayment by refinancing debt is "reasonable and manageable," Fitch said, but carries risks. The agency gave the city a negative outlook, meaning more downgrades could follow.
hgillers@tribpub.com
