- Chicago made headlines at the end of February after Moody’s downgraded the city’s general obligation bond rating to Baa2. Moody’s has cut Chicago’s rating five notches in less than two years. This downgrade, however, placed the city’s credit below the termination triggers on some of its outstanding interest rate swaps. The city has been working to renegotiate the terms of those contracts with its counter-parties.
If Chicago’s general obligation rating falls below investment grade, the city’s credit deterioration will become a self-fulfilling prophesy. The city risks nearly $400 million of swap termination payments and the acceleration of its $294 million of outstanding short-term debt.
Unsurprisingly, some of Chicago’s bonds are already trading at junk levels.
The article is rather lengthy, but it covers the city's financial situation more thoroughly that anything we've read recently, from the short terms pitfalls, the scoop-and-toss refunding, all the way to a Chapter 9 bankruptcy. Give it a read - the better educated we all are during the upcoming Rahm-times, the better off we might be.
Labels: money questions