The price of Chicago’s most-actively traded bond has erased almost all of the decline that followed Moody’s Investors Service’s May 12 decision to cut the city to junk, Bloomberg News reported today. Buyer confidence has been bolstered because banks aren’t demanding penalties related to the downgrade, anticipating Chicago will be able to sell $806 million of securities today to refinance debt. Wall Street’s support is helping Chicago avert a cash crunch as a $20 billion pension-fund shortfall leaves it with the lowest credit rating of any big U.S. city except Detroit. The loss of its investment-grade rank triggered provisions allowing banks to seek as much as $2.2 billion in accelerated debt payments or fees to break derivative contracts. Such requirements helped push Jefferson County, Ala., into bankruptcy when it was unable to refinance debt after the 2008 credit crisis.
