Financial analysts at one Wall Street rating agency on Wednesday dropped Chicago Public Schools credit rating again, less than a week before the district is expected to sell hundreds of millions of dollars in long-term bonds.
Standard & Poor's pushed the school system's bond rating one notch deeper into junk territory -- to the agency's B grade -- and said the decision was based on what are by now familiar financial concerns.
Those include the district's reliance on short-term borrowing to cover daily expenses, plus $55 million in costs added to this year's budget by the recent Chicago Teachers Union pact.
"The board's extremely weak cash position is a significant credit weakness, in our view," the agency said in a report.
CPS, among other assumptions in its budget this year, is banking that state lawmakers will come through with $215 million in aid. The district has warned it will cut that amount from schools if that assistance doesn't materialize.
"CPS continues to make important strides in improving the district's financial stability," Ron DeNard, the district's top financial officer, said in a statement. DeNard said the district would continue to press for an overhaul of Illinois' education funding formula, which he said would "lay the groundwork for fiscal stability" at CPS and other school systems.
S&P warned a further downgrade has at least a 1 in 3 chance of occurring within a year. Moody's Investors Service also dropped the district's bond rating further into junk status in late September. Both decisions could cost CPS more money when it sells new bonds.
Starting next week, analysts said, the district is scheduled to sell roughly $420 million in bonds to refinance some of its old debts along with what S&P described as "computer servers and equipment."
CPS would not publicly commit to that timing Wednesday. A spokeswoman said the district was "evaluating market conditions."
Fitch Ratings this week separately slapped those planned bonds with its current junk-level rating while repeating frequent criticisms of the current state of CPS finances.
"The lack of an adequate financial cushion leaves CPS ill-prepared to withstand even a moderate economic downturn," Fitch said Monday of the district's depleted reserves.
The Chicago Board of Education has already approved plans to use up to $1 billion in long-term borrowing to pay for construction projects and debt refinancing.
School finance officials have said the cash-strapped district soon would close separate deals for $475 million in short-term credit needed to pay the bills this year. That borrowing will land atop another $475 million worth of short-term loans that already have been tapped to cover this year's expenses.
(c)2016 the Chicago Tribune
