NEW YORK–(BUSINESS WIRE)–#creditratingagency–KBRA assigns a long-term rating of AA- with a Stable Outlook to the City of Chicago Second Lien Wastewater Transmission Revenue Bonds, Refunding Series 2024B. The long-term rating reflects the Wastewater System’s strong financial flexibility, historically stable operating performance, and the favorable characteristics of the large and diverse service area. Concurrently, KBRA affirms the long-term rating of AA- with a Stable Outlook on the City of Chicago’s parity Second Lien Wastewater Transmission Revenue Bonds.
The Second Lien Wastewater bonds are limited obligations of the City of Chicago (“the City”), payable solely from a second lien on net revenues of the sewer revenue fund.
Key Credit Considerations
The rating actions reflect the following key credit considerations:
Credit Positives
- Large, diverse, and stable City of Chicago customer base and track record of providing reliable sewerage, drainage collection and conveyance service.
- Strong debt service coverage levels generated by consistent rate increases and the effectuation of operational efficiencies.
- Healthy liquidity in each of the last six years.
Credit Challenges
- Lack of a debt service reserve fund (DSRF), and a relatively weak (1.1x) rate covenant.
- High leverage, evidenced by a debt-to-plant ratio of 67% at FYE 2023, coupled with a robust multi-year CIP highlighting the projected issuance of an estimated $930.1 million in parity new-money debt through 2028.
Rating Sensitivities
For Upgrade
- Material, sustained reduction in leverage.
For Downgrade
- Failure to implement timely rate increases leading to declines in debt service coverage and/or constrained levels of unrestricted liquidity.
- Unfavorable service area demographic trends leading to reduced rate-setting flexibility and affordability.
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Methodologies
- Public Finance: U.S. Municipal Retail Utility Revenue Bond 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.
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) is a full-service credit rating agency 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 by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.
Doc ID: 1006775
Contacts
Analytical Contacts
Michael Taylor, Senior Director (Lead Analyst)
+1 646-731-3357
michael.taylor@kbra.com
Linda Vanderperre, Senior Director
+1 646-731-2482
linda.vanderperre@kbra.com
Karen Daly, Senior Managing Director (Rating Committee Chair)
+1 646-731-2347
karen.daly@kbra.com
Business Development Contacts
William Baneky, Managing Director
+1 646-731-2409
william.baneky@kbra.com
James Kissane, Senior Director
+1 646-731-2380
james.kissane@kbra.com
