Chicago had the credit rating on $8.3 billion of general-obligation and sales-tax debt cut one level to Baa1 by Moody's Investors Service, which cited "massive" pension liabilities.
The cut, on the 177th anniversary of Chicago's incorporation, follows a three-step downgrade in July. It was an unprecedented reduction for a U.S. city as populous as Chicago, according to data dating back 1990. The outlook remains negative, meaning more downgrades may follow.
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The cut to three levels above junk "reflects the city's massive and growing unfunded pension liabilities, which threaten the city's fiscal solvency," wrote analyst Matthew Butler, who is based there. "The size of Chicago's unfunded pension liabilities makes it an extreme outlier."
Chicago plans to issue $405 million of general-obligation bonds as soon as next week, according to data compiled by Bloomberg. The sale would be the first from the city of about 2.7 million since 2012.