'Still options for Chicago and Illinois': S&P director

Santelli Exchange: Illinois on CreditWatch Negative
Santelli Exchange: Illinois on CreditWatch Negative   

After both Chicago and Illinois were downgraded by Standard & Poor's this month, a senior director at the agency said that there are still options beyond default or bankruptcy.

"I think there are still options for pension reform both at the state and the local level in ways to manage this liability," John Sugden said Friday in an interview with CNBC's "Squawk on the Street."

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On May 8, Standard & Poor's put the state of Illinois on credit watch negative, which means the agency expects to take action on the rating within the next 90 days. The move was motivated by the recent ruling from the Illinois state court, which determined pension reform to be unconstitutional.

Chicago
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Chicago

On Thursday, Chicago's rating was lowered two notches to A- with a credit watch negative. Sugden said the move was tied to unfunded pension liabilities but more importantly to the liquidity pressure the city is facing.

As per the agency's policy, he would not offer recommendations to investors but did say, "from our standpoint, credits that are staying on top of their pension liabilities and making their pension payments, and have revenue and expenditure alignment, are certainly a stronger credit quality."