Berwyn, IL GO Debt Outlook Revised To Negative On Persistent Pension Underfunding

CHICAGO (S&P Global Ratings) Dec. 20, 2018--S&P Global Ratings has revised its 
outlook to negative from stable and affirmed its 'BBB+' rating on Berwyn, 
Ill.'s existing general obligation (GO) bonds. At the same time, we assigned 
our 'BBB+' rating to its series 2018A GO bonds and series 2018B GO taxable 
bonds. The outlook is negative.

"The outlook revision reflects our view that the city continues to underfund 
its pension annual required contributions (ARCs)—apart from pension bond 
issuances—indicating a significant revenue and expenditure mismatch for 
ongoing operations," said S&P Global Ratings credit analyst Blake Yocom. The 
city plans to use pension bond proceeds to fund its ARCs in addition to 
funding the unfunded accrued actuarial liability (UAAL). In years without 
pension bond issuance, the underfunding is severe as evidenced by contributing 
35% of the actuarially determined contribution (ADC) of its police pension 
plan and 32% of its firefighters' pension plan in fiscal 2017. In addition, 
the city's failure to adhere to minimum pension funding requirements under 
state law raises the risk of the state withholding certain revenue it shares 
with the city. However, the city indicates this risk may be mitigated given 
the pension bonding plan.

The city's full faith and credit and an agreement to levy ad valorem property 
taxes without limit as to rate or amount secure the series 2018A, B, and 
parity bonds. Series 2018A bond proceeds will be used to current refund 
certain maturities of existing debt to restructure debt repayments. Series 
2018B bond proceeds will be used to fund a portion of the UAAL of the police 
pension fund and the firefighters' pension fund and to refund the series 2013A 
and certain maturities of series 2007B to restructure debt repayments. 

Berwyn, with an estimated population of 56,430, is in Cook County.

"The negative outlook reflects our view of Berwyn's continued weak management 
conditions, very weak performance, and very weak debt and contingent liability 
profile," added Mr. Yocom. Significant underfunding of its pensions—apart from 
pension bond issuances—and essentially borrowing for ongoing operations 
supports our view of an extremely high debt burden, high fixed costs, and a 
resulting persistent structural imbalance.