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Citing economy, pension worries, Fitch downgrades Chicago

Monday, 11 Nov 2013 | 7:09 AM ET
Chicago downgraded by Fitch
Monday, 11 Nov 2013 | 11:46 AM ET
Fitch has downgraded $8.5 billion in Chicago bonds. CNBC's Scott Cohn reports the downgrade comes a day after the Illinois Legislature adjourned without dealing with a $100 billion crisis statewide.

Fitch Ratings cut Chicago's bond ratings on Friday, citing the city's sluggish economy and its inability to find a solution to its union pension obligations.

The credit ratings agency said it downgraded $8 billion in Chicago's unlimited tax general obligation (ULTGO) bonds to A- from AA-. It also cut $497.3 million sales tax bonds to A- from AA-, and downgraded $200 million commercial paper notes, 2002 program series A (tax exempt) and B (taxable) to BBB from A.

Fitch said its rating outlook on the city's securities is "negative."

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The ratings agency said the downgrade reflects a lack of meaningful solutions to both its near-term and long-term obligations.

"The city has been unsuccessful in its attempts to negotiate a solution with labor unions and lobby the state legislature, which ultimately controls the benefit formula," Fitch said in a statement.

The company also said that while the city has good prospects for long-term economic stability, if not growth, but high unemployment and the recovery of its property tax base remain a continuing problem.

(Read more: 'Extreme commuting' costs getting out of control)

Correction:

This story has been updated to reflect the correct date of the downgrade.

By CNBC

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