KBRA Assigns BBB Rating to the Board of Education of the City of Chicago, Unlimited Tax GO Bonds (Dedicated Revenues), Series 2025A; Affirms Rating for Parity Bonds; Outlook Remains Negative

NEW YORK--(BUSINESS WIRE)--KBRA has assigned a long-term rating of BBB to the Unlimited Tax General Obligation Bonds (Dedicated Revenues) of the Board of Education of the City of Chicago, IL (Chicago Public Schools), Series 2025A. The Outlook remains Negative.

We have affirmed the long-term rating of BBB on those outstanding series for which, like the Series 2025A Bonds, KBRA has not received a legal opinion provided by the Board and approved by KBRA's outside counsel, that the property taxes securing the bonds should likely be treated as "special revenues", as defined under the U.S. Bankruptcy Code in a Chapter 9 legal proceeding. For those series with associated special revenue legal opinions, the BBB+ rating is affirmed.

The continuation of the Negative Outlook reflects KBRA’s expectation that, despite the balanced FY 2026 budget, fiscal pressures will remain acute given CPS’s constrained liquidity, structural imbalance, continued reliance on non-recurring revenues, and heavy fixed-cost burden. Further liquidity erosion, failure to secure adequate long-term revenues, significant mid-year budget revisions or a loss of market access would likely trigger downward rating pressure.

KBRA maintains low investment-grade ratings on the District’s GO bonds, albeit with recognition of continued downside risk, given our view that despite persistent fiscal challenges, the District is likely to maintain near-term market access and state support sufficient to meet essential obligations, including payment of debt service on Alternative Revenue Bonds (“ARBs”) issued under the Local Government Debt Reform Act and School Code.

Key Credit Considerations

The rating actions reflect the following key credit considerations:

Credit Positives

• Sound security structure, with Pledged State Aid Revenues as the primary source of repayment and a dedicated property tax levy as a secondary source. The dedicated property tax levy, if required, is deposited directly with the Bond Trustee.
• Continued increases in State funding under the EBF formula, which includes hold harmless provisions that effectively remove enrollment decline related funding risk, providing additional resources to CPS.
• The Board’s annual teachers’ pension costs are supplemented by a dedicated pension property tax levy and the State contribution for normal pension costs.

Credit Challenges

• While the unassigned General Operating Fund balance grew significantly over the past five years, reaching a strong 14.1% of expenditures, cash flow is very narrow, necessitating reliance on TAN borrowing to support operations at various points throughout the fiscal year.
• Mounting fiscal challenges destabilized District leadership, which is operating with an interim CEO and a newly elected/appointed 21-member Board. The District’s CFO has announced her departure, effective early September 2025.
• Pension costs continue to grow despite a dedicated pension property tax levy and the State’s assumption of normal pension costs.

Rating Sensitivities

For Upgrade

• Sustained improvement in the Board’s liquidity position.
• Structurally balanced financial operations going forward, as projected by an annually published long-term financial plan.

For Downgrade

• Further deterioration in the Board’s liquidity position.
• Worsening structural budgetary imbalance.
• Non-adherence to fiscal discipline and/or Board adoption of credit negative policies, including borrowing for operations.

To access ratings and relevant documents, click here.

Methodologies

• Public Finance: U.S. Local Government General Obligation 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), one of the major credit rating agencies (CRA), is a full-service CRA 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 (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan’s Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.

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