CHICAGO (Reuters) - S&P Global Ratings warned on Thursday that the Chicago public school system's B-plus credit rating could fall deeper into the junk level due to its "extremely weak" cash position.
"Unless (the Chicago Board of Education) achieves what we view as a credible and sustainable long-term solution to its financial pressures while continuing to demonstrate that it can fund its cash-flow needs, further downgrades are possible," the credit rating agency said in a statement.
S&P affirmed a B-plus rating for the Chicago Public Schools' (CPS) outstanding general obligation bonds and assigned the rating to $150 million of bonds the district privately placed with J.P. Morgan in late July. But that rating remained on S&P's watch list for a potential downgrade over the coming months.
The nation's third-largest public school system has been struggling with escalating pension payments, drained reserves and debt dependency.
Its board of education, appointed by Chicago Mayor Rahm Emanuel, signed off last month on a $5.46 billion fiscal 2017 operating budget, $250 million property tax hike, and a borrowing plan that calls for up to $945 million of long-term bonds and $1.55 billion of short-term debt for cash flow purposes.
S&P said it could drop the rating multiple notches if CPS is unable to obtain credit lines to aid cash flow. A downgrade would also be likely if $215 million in state funding does not materialize, it added.
As part of a six-month Illinois budget deal finalized in June, Republican Governor Bruce Rauner and the Democratic-led legislature agreed to steer $215 million to CPS on a one-time basis for pension costs on the condition that lawmakers finalize a statewide pension reform package by January.
CPS did not immediately respond to a request for comment.
(Reporting by Karen Pierog; Editing by Matthew Lewis)