Rating Action: Moody's downgrades Catholic Bishop of Chicago (IL) to Ba1; outlook stable
Global Credit Research - 09 Dec 2020
New York, December 09, 2020 -- Moody's Investors Service has downgraded Catholic Bishop of Chicago (CBC or Archdiocese) to Ba1 from Baa1, affecting approximately $130 million of general obligation notes outstanding. The outlook remains stable.
The downgrade to Ba1 is largely driven by our view of escalating core social and business risks across the sector driven in large part by sexual abuse claims leading to an increasing trend of preemptive bankruptcy. This pattern is not correlated with the soundness of financial operations, balance sheets and other credit fundamentals.
The Ba1 is supported by the Archdiocese of Chicago's financial reserves, scale, and strong management, all providing significant capacity to manage currently known exposures. Management has clearly articulated and well-defined plans for addressing financial risk associated with sexual abuse cases as well as the coronavirus pandemic. The management team's strong transparency provides management credibility, a credit supportive governance consideration. However, the Archdiocese is one of the subjects of an ongoing investigation by the Illinois attorney general that may contribute to growth in sexual abuse claims. While current projections of sexual misconduct claims, which arise from decades-old alleged incidents, appear to be manageable, their full impact and their implications for defensive filing introduce an element of unpredictability, limiting the rating.
The stable outlook reflects management's ongoing strengths in managing its operations and
resources, fulfilling its mission even during the pandemic and managing its claims well on an ongoing basis. However, uncertainty remains over the number of future claims.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
- Mitigation of litigation exposure and demonstrated ability to manage potential escalation of self-insurance claims
- Conclusion of the attorney general investigation with evidence of no material rise in claims
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
- Further increase in the number of claims or settlement costs of lawsuits greater than anticipated requiring use of liquidity or raising the risk of reorganization
The Series 2012 and 2013 notes are a general obligation of The Catholic Bishop of Chicago. The Designated Funds is comprised of the Archdiocese of Chicago Pastoral Center and Catholic Cemeteries for the primary source of repayment. However CBC can access other funds as available to meet debt service on the notes.
Both series have three financial covenants for the Designated Funds. There is a debt service coverage test of at least 1.2x calculated quarterly. The second is a minimum 2.25x unrestricted cash and investments to total indebtedness. The third is total indebtedness of less than 45% of total indebtedness plus unrestricted cash and investments. Management anticipates adequate headroom above all financial covenants.
CBC has a $37 million outstanding bank loan, supported by a real estate proceeds account held by an administrator. During the term of the loan CBC must deposit into a segregated fund proceeds from real estate sales while the principal is outstanding. On the January 2022 maturity date of the bank facility, the funds in the real estate account will be used to repay the outstanding principal and accrued interest.
The Archdiocese of Chicago, the third largest in the United States, serves more than 2.2 million Catholics in 290 parishes in Cook and Lake counties, a geographic area of 1,411 square miles. The Archdiocese, pastored by Cardinal Blase J. Cupich, has more than 15,000 employees in its systems and ministries, including Catholic Charities, the region's largest nonprofit social service agency. The Archdiocese also has one of the country's largest seminaries. The Archdiocese's 162 elementary and secondary schools comprise one of the largest U.S. private school systems. Its schools have garnered 94 U.S. Department of Education Blue Ribbon Awards.
The principal methodology used in these ratings was Nonprofit Organizations (Other Than Healthcare and Higher Education) published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1160889. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Michael Osborn Lead Analyst Higher Education Moody's Investors Service, Inc. 7 World Trade Center 250 Greenwich Street New York 10007 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Susan Fitzgerald Additional Contact Higher Education JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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