Fitch Ratings Wednesday upgraded the Chicago Board of Education’s issuer default rating and outstanding unlimited tax general obligation bonds to BB-plus from BB and the CBOE's outstanding dedicated capital improvement tax bonds to A from A-minus.
At the same time, Fitch assigned a BB-plus rating to the CBOE’s $500 million of Series 2022A unlimited tax dedicated revenues GOs and $359.415 million of Series 2022B unlimited tax dedicated revenues refunding GOs.
The Series 2022 bonds are scheduled to price the week of Jan. 10 with proceeds financing various capital improvements and refunding outstanding bonds for debt service savings.
The rating outlook is stable.
“The upgrade of the district's IDR and ULTGO rating to BB-plus reflects a trend of improved financial performance, restoration of reserves to adequate levels and strengthened liquidity,” Fitch said. “Credit risks center on CBOE's elevated long-term liability burden, driven by a rising net pension liability, and its limited budgetary tools to address future cyclical downturns. A contentious relationship with the Chicago Teacher's Union places additional strain on the district's expense management and flexibility.”
The GOs are payable from dedicated BOE revenues in the first instance and also payable from unlimited ad valorem taxes levied against all taxable property within the district.
The CIT bonds are secured by a first priority lien on CIT revenues, which constitute a property tax levied by the CBOE on all taxable property within the district. The CIT bonds are also backed by a debt service reserve fund equal to 14% of maximum annual debt service.
Fitch said Chicago remains the economic and cultural center for the Midwest, despite flat population trends and steadily declining district enrollment.
"The city's economy was hard hit by the coronavirus pandemic, particularly the leisure and hospitality sector. Labor market trends have improved but unemployment remains elevated," Fitch said. "Socioeconomic indicators are mixed with above average educational attainment levels and per capita income but an elevated poverty rate."
Fitch said it expects revenue growth, "absent policy action, to keep pace with inflation based on slow growth within property tax levy limitations and relatively flat state aid."
