CHICAGO, Jan 19 (Reuters) - The Chicago Board of Education’s credit rating sank deeper into “junk” on Tuesday with a Fitch Ratings downgrade to B-plus with a negative outlook from a previous rating of BB-plus.
“The downgrade reflects the limited progress Chicago Public Schools (CPS) has made in addressing a structural budget gap approximating 20 percent of spending for the current fiscal year,” the credit rating agency said in a statement
Fitch’s action followed a similar move on Friday by Standard & Poor’s, which cut the rating for the financially struggling district two notches to B-plus.
In its rating report, Fitch said CPS faces a “relatively inflexible expenditure profile,” an extremely limited independent ability to raise revenue and will likely deplete its reserves by the end of fiscal 2017.
The nation’s third-largest public school system plans to sell $875 million of general obligation bonds next week. A recently posted online investor presentation for the bond sale indicated that CPS continues to push for more funding from the state of Illinois and aims to eliminate a more than $1 billion structural budget deficit by fiscal 2018.
With a financial fix for CPS entangled in the state’s budget impasse, school officials said they would take cost-cutting action and rely on short-term borrowing if there is no solution by the time fiscal 2016 ends. Republican leaders of the Democrat-controlled state legislature plan to unveil legislation on Wednesday related to the district’s fiscal crisis.
The bond issue includes a refunding and restructuring of outstanding debt to convert variable-rate bonds to fixed rate and to push out maturities on other bonds to free up money for the school system’s budget. The issue will also raise money to cover fees to terminate interest rate swaps related to the variable-rate debt.
The school district faces the possibility of a strike after teachers overwhelmingly voted last month in favor of the move.
Reporting By Karen Pierog; Editing by Tom Brown
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