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  #331  
Old 02-07-2018, 09:44 AM
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Mary Pat Campbell
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Re the Kroll upgrades:

https://twitter.com/PeterMatuszak/st...10440670244865
Quote:
Peter Matuszak

Amazing, seems like this one rating agency has been way more positive about Chicago debt than the other more established firms. Hmm, I bet if someone looked into there might be something missing from this story, something in a press release from Oct 2017.

Wow, another article missing a key fact about this story. I mean a double bond rating upgrade for Chicago out of the clear blue, why would Kroll do that?

Last chance, you would think the wonks at P&I would have picked up on the one thing about Kroll that would tie this whole Chicago double upgrade together. Nope.
https://twitter.com/Yvette_BB/status/961011371310755840
Quote:
hmmm.......pondering.....pondering....could it reference to the appointment of former chicago chief financial officer Lois Scott to the Kroll board?
No conflict of interest, eh?
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  #332  
Old 02-07-2018, 09:48 AM
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Here's the press release in question: [October 2017]

Quote:
KBRA Announces Election of Lois A. Scott to Board of Directors

Spoiler:
NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) is pleased to announce the appointment of Lois Scott as the most recent member of its board of directors.

Lois currently serves on the board of the Chicago Stock Exchange (Chair, Audit Committee, Regulatory Oversight Committee), the Federal Home Loan Bank of Chicago (Audit and Risk Management Committees), and the advisory boards of other privately held financial services companies. From 2015 to 2017, she served on the board of MBIA Inc. (MBI – NYSE, Audit Committee and Finance and Risk Committee). She is Chair of the Advisory Board of the Center for Municipal Finance at the Harris School of the University of Chicago, co-founder of the Municipal CFO Forum, a founding board member of Retirement Security Initiative, and is well known as one of the founders of Women in Public Finance.

From 2011-2015, Lois served as the Chief Financial Officer for the City of Chicago, where she had financial oversight of essential City services as well as O’Hare Airport, Midway Airport, the City’s public-private infrastructure partnership contracts, and water and wastewater systems. Lois brought corporate-style investor relations and enhanced disclosure to municipal government, launching the City’s annual investor conference in 2011. Lois is also a frequent speaker on the financial sustainability of state and local government, she also served as special advisor to the Clinton Global Initiative on infrastructure.

In addition, Lois was named the “100 Most Influential People in Government” by Crains for multiple yeas in a row and the “Freda Johnson Trailblazing Woman Award,” by the Northeast Women in Public Finance in 2014. Lastly, she was also named “Woman of the Year,” at the Women in Public Finance national conference in 2011.

"We are delighted to have Lois join KBRA as a member of our board. She brings a deep understanding of credit, strategic and entrepreneurial approach, as well as decades of experience managing finance organizations,” said Jim Nadler, President and CEO.


I decided to look for Scott in this very thread. I found a few posts in which she kept dinging Moody's downgrade of Chicago back in 2014:
Quote:
Originally Posted by campbell View Post
Quote:
Originally Posted by campbell View Post
http://mobile.reuters.com/article/id...40313?irpc=932

I highly doubt they think Chicago is more creditworthy than Moody's is pegging it.

I think they're deliberately taking on credit risk.
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  #333  
Old 02-08-2018, 02:22 PM
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https://www.ai-cio.com/news/kroll-up...g-two-notches/

Quote:
Kroll Upgrades Chicago Bonds to A Rating
Boost hopes to help Second City’s pension predicaments.
Spoiler:
In a surprising move to help resolve Chicago’s largely underfunded pension funds, the Kroll Bond Rating Agency (KBRA) upgraded the city’s bond rating two notches.

Following its annual outlook on the state’s financial situation, the Wall Street agency’s decision to upgrade the city from a BBB+ to an A “reflects identification and dedication of permanent ramp-up revenue sources to address severely underfunded pensions, and KBRA’s expectation that addressing these pension obligations long term will prove to be affordable and sustainable for the city’s wealth base.”

Chicago Mayor Rahm Emanuel expressed his gratitude for Kroll’s upgrade, calling it a reflection of “seven years of work to put our pensions on a path to solvency, address legacy debt issues, and reduce the structural budget gap.”

“While there is still more work to do, today Chicago is on firmer financial footing because we came together to address the financial challenges we inherited with real solutions,” he said in a statement. “Today, as a result, we can invest in Chicago’s future with certainty, we can provide taxpayers certainty about the city’s direction and we can provide businesses the certainty they need to create more jobs for residents across the city.”

This revelation is a head-scratcher, as Moody’s Investors Service nearly downgraded the city to “junk” bond status last year. According to the Chicago Tribune, Moody’s is still categorizing Chicago’s debt as such. In addition, the Illinois pension system was under 40% funded in the last fiscal year.

While Kroll agreed with Moody’s sentiments that annual contributions will need to increase significantly from 2020 to 2023, with hopes that Chicago can collect $864 million more per year by 2022, it showed more optimism than Moody’s in terms of Chicago getting the job done.

“KBRA believes the City’s management team has been proactive in implementing necessary measures to stabilize and improve financial operations. This follows a period characterized by structural budget deficits and the use of non-recurring sources in the prior administration,” Kroll said in a statement. “KBRA notes that Chicago exhibits characteristics of an important world business center and houses one of the world’s largest and most diversified economies.”

Most recently, Illinois lawmakers have been entertaining the idea of a bond sale larger than its entire obligations, but it’s unlikely that the measure will pass should the state’s Republican Gov. Bruce Rauner be re-elected come November. However, coupled with other credit agencies following Kroll’s bold upgrade, the bond sale would have a higher chance under a Democratic administration.


https://www.truthinaccounting.org/ne...-credit-rating
Quote:
The City of Chicago’s new 'A' credit rating

Spoiler:
The Chicago Tribune on Tuesday reported that the Kroll Bond Rating Agency increased its rating for the city of Chicago. The article informs us of the reasoning behind Kroll’s decision, and also how Chicago Mayor Rahm Emanuel appreciated this vote in favor of his financial leadership.

However, the article should be read cautiously.

A credit rating debt upgrade by one firm does not necessarily mean Chicago’s credit quality really improved. If we learned anything from the 2007-2009 financial crisis, bond ratings should not be taken at face value.

Kroll cited the city’s efforts to shore up underfunded employee pension funds as a reason for its upgrade. This may improve credit quality, of course, but improvements for bondholders are not always in the interest of taxpayers and residents.

Higher taxes do not necessarily improve a taxpayer’s financial position.

Kroll upgraded the city two notches, from a BBB+ to A. But those ratings are both at the lower end of “investment grade” ratings. When the average citizen sees that Chicago is now an “A,” they probably need some more context to understand that this does not mean Chicago has gone to the head of the class. Credit rating firms also issue AA and AAA ratings.

Credit rating agencies are not government agencies. They are private-sector firms paid by the issuers of debt, and in this case, the city of Chicago. Their ratings gain regulatory authority because financial regulators have chosen to include their ratings in financial regulation—a practice with a very checkered history, but one that persists today. This might help to explain why BBB+ and A look good on surface, compared to C, D, and F grades, but they are not necessarily great ratings.

The Tribune article stated that “if other agencies eventually follow suit, the city could end up paying less interest on future borrowing.” This indicates that our media apparently has yet to learn “chicken or the egg” lessons from financial markets. They may still give too much credit to bond rating firms for the value of their opinions. Credit ratings often lag, not lead, financial market prices. In other words, Chicago’s interest on future borrowing may fall in the future, in either absolute or relative terms, but credit rating changes may simply reflect market forces already underway.

In turn, market prices and interest rates aren’t always right, either.

More fundamentally, even if the fortunes of bondholders are indeed improving, and the credit rating accurately reflects that improvement, this does not necessarily bode well for the average taxpayer.

Investors may now face a “small risk of loss,” according to Kroll. But for taxpayers it isn’t a matter of risk or probabilities. Their taxes—payments for the city’s dismal financial condition—are certainly going up.


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  #334  
Old 02-12-2018, 04:49 PM
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https://chicago.suntimes.com/chicago...flags/#new_tab

Quote:
Standard & Poor’s affirms Chicago’s BBB+bond rating, citing warning flags
Spoiler:
So much for high hopes that a double-upgrade in Chicago’s general obligation bond rating by a small Wall Street rating agency would trigger similar increases by the bigger players, reducing borrowing costs.

The best Standard & Poor’s could do Friday is reaffirm Chicago’s BBB+ general obligation bond rating and raise the rating on the city’s 1997 G.O. “limited tax building acquisition certificates”– from BBB+ to BBB. The certificates are “payable from legally available funds and are not secured by a debt service levy,” the report states.


Credit analyst Carol Spain acknowledged Chicago has made “significant progress toward stabilizing” its finances.

Mayor Rahm Emanuel has done that by “increasing pension contributions and statutory requirements to fund pensions on an actuarial basis,” eliminating scoop-and-toss borrowing and reducing the city’s once-heavy reliance on “non-recurring revenues” with a commitment to eliminate the structural deficit by 2019.

But Spain said the warning flags simply cannot be ignored. They are: Chicago’s “high fixed costs tied to its liabilities;” “significant” and fast-rising rising public safety expenses tied to a two-year plan to hire 970 additional police officers and “distressed overlapping governments” like the Chicago Public Schools that “will likely continue to challenge” the city’s “fiscal sustainability.”

“We therefore view Chicago as being at a crossroads. While our rating and outlook assume the city will maintain its current course emphasizing structural solutions to address growing liabilities, the practical reality remains that the city needs to maintain the political will and resources to address the challenges or credit quality will also reverse its trajectory,” Spain was quoted as saying.

Chief Financial Officer Carole Brown maintained that Chicago is “in a better financial position today” than it was when Emanuel took office and that S&P acknowledged that nearly two years ago by changing the outlook on the city’s general obligation bonds from negative to stable.

“Based on S&P’s criteria, our rating was capped at the current rating of BBB+, so the City was not anticipating an upgrade at this point,” Brown was quoted as saying in a statement.

“We will not stop our deliberate work to improve our long-term financial condition while continuing to grow our economy and make critical investments citywide.”

Chicago taxpayers have paid a heavy price, just to begin to solve the city’s $36 billion pension crisis.

They have already endured $1.2 billion in property taxes for police, fire and teacher pensions; a 29.5 percent tax on water and sewer bills for the Municipal Employees Pension Fund, the largest of the four; and a pair of telephone tax increases for the Laborer’s pension fund.

More tax increases are on the way. By the city’s own estimates, police and fire pension costs will rise by $297.3 million or 36 percent in 2020. The Municipal and Laborers plan costs will grow by $330.4 million or 50 percent in 2022. Emanuel has not said how he plans to close those gaps.

In raising Chicago’s bond rating by two notches this week, Kroll Bond Rating Agency acknowledged the need to “identify funding sources” for four city employee pension funds “once the interim period ends and full actuarial funding begins.”

But Kroll’s managing director Harvey Zachem said the mayor and City Council have already demonstrated the political will to confront the challenge.

“They did implement a very large, $543 million property tax levy increase and pretty substantial water and sewer usage tax increases also. We do see that as an indication of willingness to take on the 2020 and 2022 spikes,” Zachem said.

“If they were a non-home-rule unit, they’d be limited to mostly the property tax and they’d be capped…[But] they do have options with home-rule status. We would expect some combination of sources to be used.”

Kroll managing director William Cox referred to the in-depth study Kroll published last summer about the city’s pension crisis. It examined Chicago’s tax and wealth base and compared it to nearby suburbs and other large cities.

“We looked at the impact of various taxes, fees and charges and compared that to income levels of both households as well as size of businesses,” Cox said.

“Our conclusion was that Chicago, while it has a growing overall tax burden, that burden is still relatively modest compared to others in the suburban ring, as well as others across the country.”

Kroll’s senior managing director Karen Daly added, “The wealth base can handle however the city administration chooses to pay for these obligations.”
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