It might come as a surprise that about 10% of the Chicago Board of Education’s long-term debt is rated investment grade, just two years after a budget shortfall threatened to close schools early.
Yet the school district has three series of bonds that are rated ‘A’ by Fitch—for now, at least. That is 7 notches above its other debt, which is solidly junk-rated at BB-. The investment-grade debt was issued in the form of special-revenue bonds, which are structured to provide bondholders with more security and higher recoveries in case of a bankruptcy.
Now those bonds’ ratings are being reviewed for a potential downgrade, after a recent appellate court decision raised questions about the special status of special-revenue bonds. And at least two credit-ratings firms are considering downgrading billions of dollars in debt because of the court ruling, which is the first time an appellate court has addressed the issue.
Barron’s
By Alexandra Scaggs
Updated May 23, 2019 9:48 a.m. ET