Moody's reaffirms Chicago archdiocese's A1 rating, outlook remains negative

Moody's Investors Service affirms the Chicago archdiocese's A1 rating on its privately placed Series 2012 and Series 2013 Unsecured Notes. 

Moody's defines an A1 rating as "obligations rated A are judged to be upper-medium grade and are subject to low credit risk."  A triple-A rating is the highest followed by Aa1, Aa2, Aa3, and then A1. The A1 rating is considered an investment grade rating.
 
The total amount of the notes still outstanding is approximately $154 million. (See the archdiocese's most recent independent accountants' review report by Deloitte & Touche, LLP.)
 
The notes are a general obligation of the archdiocese and will be paid from funds of the chancery and Catholic cemeteries, but the archdiocese can access other funds as available to meet debt service payments on the notes.
 
The outlook is negative is due in part to weak operations, along with uncertainty around the potential impact of priest sex abuse settlements. In many respects, this is unsurprising.
 
 “The continued A1 rating reflects the strength of our balance sheet,” said Betsy Bohlen, Chicago archdiocese chief operating officer, said in a press release. “We have made significant improvements over the past three years but need to continue on this path in order to reach a ‘stable’ outlook.' "
 
In her press statement, Bohlen went on to describe the work the archdiocese is doing to improve its overall financial condition.
 
"Over the past 3 years, the Archdiocese has taken many actions to improve its financial footing. Key aspects of the improvement program have included the following:
 
  1. Launching a $350 million capital campaign that has exceeded its major gifts goal and has raised nearly $180 million thus far;
     
  2. Reducing the financial support needed by parishes and schools by helping them improve their operations, seeking new funding, and, where necessary, bringing low enrollment schools together in consolidations;  and,
     
  3. Improving the effectiveness and efficiency of our central administrative operations, the Pastoral Center.
 
"The Archdiocese leadership takes seriously the responsibility to be good stewards of our resources and is grateful for the commitment of priests, parish employees, Pastoral Center staff, board members and donors to enable us to improve our operations. We are determined to reach stable operations in the near future."
 
 
SUMMARY RATING RATIONALE

The A1 rating reflects the [archdiocese's] standing as one of the nation's largest archdioceses, with robust cash and investments relative to debt and operations, strong governance and management practices and history of strong philanthropic support.

Offsetting challenges include weak Pastoral Center operations including continued funding of parishes and schools, exposure to uncertain financial impact of existing and potential future sexual misconduct claims and volatile operations due in part to changing revenues from parish collections and from cemetery sales of pre-burial services.

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OUTLOOK

The negative outlook reflects weak operations, although improved, that will take further time to restore to fiscal balance. The rating outlook also reflects the financial risk from a rise in misconduct claims and settlements in FY 2014, with other claims still to be appraised and to reach final outcome, which would reduce reserves. The rating could be pressured if the future number of claims or settlement amounts are similar or greater than seen in FY 2014 and negatively impact established reserves.

To read the Moody's report, click the link here.

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