Chicago's credit rating has been downgraded to just above junk grade by Fitch Ratings after the Illinois Supreme Court struck down Mayor Rahm Emanuel's reform plan for two city pensions.
Fitch lowered Chicago's rating from BBB+ to BBB- on Monday, increasing the cost of borrowing.
The downgrade affects $9.8 billion of general-obligation bonds and $486 million of debt backed by sales taxes.
Fitch said it believes last week Thursday's ruling "was among the worst of the possible outcomes for the city's credit quality" and made clear the city's "responsibility to fund the promised pension benefits."
The struck-down plan required city and employees to boost contributions to the municipal and laborers retirement funds and cut future cost-of-living increases. The court ruled that it violated safeguards to public pensions enshrined in Illinois's constitution.
Rhamaland has a $20 billion shortfall in its retirement funds.
Fitch said the rating could stabilize at BBB- if the city presents "a realistic plan that puts the pension funds on an affordable path toward solvency."
Chicago is the worst-rated major U.S. city after Detroit.