Kroll Bond Rating Agency Assigns Long-Term Rating of AA to City of Chicago, Illinois Second Lien Water Revenue Bonds, Project Series 2014

Kroll Bond Rating Agency (KBRA) assigns a long-term rating of AA with a stable outlook to the $400 million Second Lien Water Revenue Bonds, Project Series 2014 of the City of Chicago, Illinois. KBRA has also assigned an AA rating with a stable outlook to all of the City of Chicago’s outstanding second lien water revenue bonds. Upon delivery of the current issue, the City will have approximately $2.322 billion in outstanding second lien water revenue bonds. This rating is based on KBRA’s U.S. Municipal Water and Sewer Revenue Bond Methodology published February 20, 2014.

The System, an enterprise fund of the City of Chicago, is characterized by a large, diverse, and stable metropolitan Chicago customer base that includes the City, and 125 suburban communities. The System benefits from a high quality, reliable Lake Michigan water source; it is an essential service with substantial excess system capacity. In KBRA’s opinion, the current administration has taken proactive steps to increase debt service coverage, improve liquidity, and address system capital needs. Operational efficiencies that have reduced staffing levels and slowed the pace of expense growth have been enacted. A series of recent large water rate increases has boosted coverage, and provided the basis for significant current funding for aging infrastructure requirements. Nevertheless, water rates remain very competitive with major U.S. water systems. Second lien revenue bond coverage now approximates 2.4x debt service requirements, and Water Rate Stabilization Fund resources are about 25 percent of annual system operating expenses. KBRA views the System’s increased pension funding obligation under recently enacted State legislation as manageable. Although the system’s debt to net fixed asset ratio is high, KBRA believes that increased current funding of capital needs will moderate future debt issuance.

The stable outlook reflects KBRA’s expectation that customer growth trend continues, expiring contracts with suburban customers are extended, and the commitment to the water capital improvement plan is adhered to, and remains on schedule, without significant cost overruns. KBRA also expects debt service coverage margins to stay in excess of indenture requirements, and favorable water quality trends to be sustained.

To view the report, please visit www.krollbondratings.com.

About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).