CHICAGO — New Chicago Mayor Lori Lightfoot’s trip to New York City this week included an initial meet-and-greet with Fitch Ratings and JPMorgan Chase chief executive officer Jamie Dimon.
The trip was aimed at bridging “new partnerships by meeting with business and community leaders to gain valuable insight on an array of issues and opportunities facing Chicago,” said Lightfoot spokeswoman Lauren Huffman.
“While in NYC, the mayor met with former Mayor Bloomberg regarding the work of his foundation, current Mayor de Blasio, and the NYPD. She also participated in meetings with the CEO of J.P. Morgan, Chicago's largest lender and a major philanthropic partner, and NY-based Fitch Ratings as part of a continued conversation started by the administration with our financial partners,” Huffman said.
The meetings during her trip that lasted from Sunday through Tuesday were described as meet-and-greets to foster relationship building. Lightfoot took office May 20.
More in-depth meetings with the rating agencies are in the works and the city will stress that it's working more closely with its sister agencies, especially junk-rated Chicago Public Schools, to come up with budgetary and pension fixes, according to market participants in the Windy City.
Fitch rates Chicago at the lowest investment grade level of BBB-minus. Kroll Bond Rating Agency rates the city at A and S&P Global Ratings rates the city BBB-plus. Moody’s Investors Service rates the city at the junk level of Ba1. The city and its sister agencies no longer ask Moody’s for new ratings and it’s unclear whether the new mayor will maintain that policy. All four assign a stable outlook.
The city has yet to put a number on the size of the expected deficit in the 2020 budget. Former Mayor Rahm Emanuel’s administration said the city needed to come up with more than $700 million to cover expenses not accounted for this year, including rising debt service, police and firefighter pension funds contributions, and public safety raises. That’s separate from the structural deficit that last summer was estimated at $250 million. The city has $28 billion in net pension liabilities.
Dimon lived in Chicago during his tenure as chief executive of the former Bank One Corp. When JPMorgan purchased the bank in 2004, Dimon took over the role of president and chief operating officer of the combined company and in 2005 became CEO.
The city and JPMorgan enjoy close ties as the firm serves as a frequent underwriter of city debt, provides credit support, and provided cash flow support for Chicago Public Schools during its budget and liquidity crisis by purchasing its notes, although the purchases came with an expensive price tag. The bank also provides philanthropic support in Chicago.
While banks reap fiscal benefits from the city by underwriting its bonds and through other financial transactions, the benefits of the relationships cut both ways. Market participants are watching closely to see how Lightfoot fosters them.
Banks played a key role in providing the city with credit and underwriting support, and time to resolve its $2.2 billion liquidity crisis, after Moody’s Investors Service cut the city’s rating to junk in May 2015. The downgrade triggered defaults on the city’s credit lines, swaps and bank support contracts that could have resulted in accelerated debt repayment.
The city eventually resolved the crisis by moving its credit line debt, general obligation floating-rate paper supported by bank liquidity, and swap termination fees into long-term debt in 2015 and 2016 deals.
