KBRA Assigns A- Rating to Various City of Chicago, IL General Obligation Bonds; Affirms Rating for Parity Bonds; Outlook Remains Negative

KBRA assigns a long-term rating of A- to the City of Chicago, IL: General Obligation Bonds, Series 2025A; General Obligation Bonds, Series 2025B; General Obligation Bonds, Series 2025C; General Obligation Bonds, Taxable Series 2025D; General Obligation Bonds, Series 2025E; General Obligation Bonds, Series 2025F (Housing and Economic Development Projects); and, General Obligation Bonds, Taxable Series 2025G (Housing and Economic Development Projects). KBRA additionally affirms the long-term rating of A- for the City's outstanding General Obligation Bonds. The rating Outlook remains Stable.

Key Credit Considerations

The rating actions reflect the following key credit considerations:

Credit Positives

• The City’s regional significance reflected in its substantial tax base and large, diverse economic base.
• Ample available reserve balances supplement the City’s solid liquidity position.
• The funding of a third consecutive advance pension contribution, albeit from a one-time assigned fund balance, is an important and meaningful step towards long-term pension funding stability.

Credit Challenges

• Reliance on non-recurring revenues rather than structural expenditure adjustments to resolve budgetary shortfalls calls into question the City’s ongoing ability to meet its exceptionally high pension-driven fixed cost burden and growing personnel and other operating costs.
• The advance pension contributions made since 2023 to stabilize the NPL and prevent liquidation losses, while credit positive in the long run, risk crowding out other Corporate Fund spending in the short run, unless additional long-term funding sources are identified.
• Compounding the City’s severely underfunded pension status, the possibility of retroactive adjustments and increased future pension benefits exists should the pension systems’ Tier 2 benefits fall out of compliance with IRS Safe Harbor Tests.

Rating Sensitivities

For Upgrade

• Long-term revenue enhancements and spending reforms that address the City’s growing structural budget gap.
• Dedication of specific revenues (in lieu of one-time assigned fund balance) to achieve actuarial pension funding requirements.
• Improved debt ratios, reflecting a sustained moderation of borrowing and continued expansion of the resource base.

For Downgrade

• Use of Chicago Skyway and parking meter asset and concession lease reserves to offset budgetary gaps.
• Failure to adhere to established financial and debt policies.
• Borrowing by the City for other than capital purposes.

To access ratings and relevant documents, click here.

Methodologies

• Public Finance: U.S. Local Government General Obligation Rating Methodology
• ESG Global Rating Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Only those ratings on securities issued by this Issuer that also are denoted on the Security Ratings tab for this Issuer on KBRA.com as “endorsed” by Kroll Bond Rating Agency Europe Limited into the European Union and/or by Kroll Bond Rating Agency UK Limited into the UK are covered by the disclosures set forth in this press release and the corresponding Information Disclosure Form. No other ratings on issuances by this Issuer have been endorsed into the European Union or the UK, and the disclosures set forth herein and in the corresponding Information Disclosure Form are inapplicable to those ratings and may not be used for regulatory purposes by European Union or UK investors in these securities.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA), one of the major credit rating agencies (CRA), is a full-service CRA registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a Designated Rating Organization (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan’s Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.

Doc ID: 1009548

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