KBRA Affirms AA- Rating for City of Chicago Second Lien Wastewater Transmission Revenue Bonds
30 Oct 2026 | New York
KBRA affirms the AA- long-term rating with a Stable Outlook for the City of Chicago, Illinois Second Lien Wastewater Transmission Revenue Bonds. The rating continues to reflect the City of Chicago (the City) Wastewater System’s (the System) strong financial flexibility, historically stable operating performance, relatively limited operational complexity, and the favorable demographic characteristics of the large and diverse service area.
The Second Lien Wastewater Transmission Revenue Bonds (Second Lien Bonds) are limited obligations of the City, payable solely from a second lien on net revenues of the Sewer Revenue Fund. The City had $1.47 billion of Second Lien Bonds outstanding as of fiscal year end 2025 (FYE, December 31). The Second Lien Bonds are subordinate to $16.3 million of outstanding Senior Lien Wastewater Transmission Revenue Bonds, which mature in 2028, and are senior to $462 million in Illinois Environmental Protection Agency (IEPA) Loans. While the senior lien remains open, the City covenants that it will not issue additional Senior Lien Bonds.
Key Credit Considerations
The rating was affirmed because of the following key credit considerations:
Credit Positives
- Large, diverse, and stable City of Chicago customer base provides ample resources to fund the operations of the System, which are limited to the collection and conveyance of sanitary and storm sewage.
- Sound debt service coverage levels have historically been generated by consistent rate increases and the implementation of operational efficiencies.
- The System has maintained healthy liquidity in each of the last five years.
- Overall rate affordability is favorable, indicating capacity to implement future rate increases.
Credit Challenges
- The Master Trust Indenture lacks a DSRF requirement. The 1.10x rate covenant is relatively weak.
- High leverage, evidenced by long-term debt equal to 63% of net fixed assets at FYE 2025, is expected to remain pressured by a substantial $3.07 billion multi-year CIP that may require significant additional borrowing through 2030.
Rating Sensitivities
For Upgrade
- Material, sustained reduction in leverage.
For Downgrade
- The Master Trust Indenture lacks a DSRF requirement. The 1.10x rate covenant is relatively weak.
- High leverage, evidenced by long-term debt equal to 63% of net fixed assets at FYE 2025, is expected to remain pressured by a substantial $3.07 billion multi-year CIP that may require significant additional borrowing through 2030.
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