George Looking to Wall Street to Shore up Archdiocese Finances

By Manya A. Brachear
Chicago Tribune
January 29, 2012,0,1116500.story

Church officials won't confirm bonds will be sold, but archdiocese earned a top rating from Moody's based on a proposed offering of $151.5 million

As Cardinal Francis George prepares to retire in the next few years and hand over the reins of the Archdiocese of Chicago to a successor, he is looking to Wall Street and the achievement of one particular predecessor to ensure the church's long-term financial viability and leave a legacy of his own.

On Wednesday, the archdiocese earned a top rating from the Moody's firm, a typical prerequisite to selling private bonds. A bond sale is a maneuver to improve cash flow that was used by Cardinal George Mundelein nearly a century ago. The Moody's report was based on a proposed offering of $151.5 million in bonds.

Citing strict federal regulations imposed by the Securities and Exchange Commission that preclude discussion of a pending bond sale, no church official, including George, will confirm that bonds will be issued. The Moody's report also points out that the rating does not mean a sale is guaranteed.

But the cardinal has previously said he wants "to take advantage of historically low interest rates and the good creditworthiness of the archdiocese."

"Rather than borrow directly from banks it might be advantageous to float bonds and pay them back on a regular basis, which is what a lot of corporate entities do," George said in response to questions from the Tribune last month.

But he stressed that no decision had been made. "There's a conversation going on about whether or not the archdiocese should at this time do something that Cardinal Mundelein first did, meaning float private bonds to cover debts," George said.

Considered one of the nation's top businessmen of the early 20th century, Mundelein financed and created most of the modern archdiocese and earned a reputation much like the Rockefellers and the Vanderbilts. Even at the height of the Great Depression, national media touted that "no one in Chicago had better credit than the cardinal."

According to analysts, George's reputation may be much the same.

"He's leaving Chicago in the best position it's ever been in recent memory," said Patrick O'Meara, president of O'Meara Ferguson Whelan and Conway, the financial firm hired by the archdiocese to facilitate fundraising and investment strategies. "His legacy is going to be in many ways. One way is he wants the temporal affairs to be really solid."

Mundelein's role

When Mundelein took over in Chicago in 1916, he immediately sought to safeguard the church's assets with the "corporation sole" designation, making the Catholic bishop the sole titleholder of archdiocesan properties.

As corporation sole, Mundelein organized Catholic Charities and created the Catholic cemetery system. He oversaw construction of more than 200 of the archdiocese's parishes, the church's current headquarters (originally Quigley Theological Seminary) and the archdiocese's major seminary, University of St. Mary of the Lake in Mundelein, the north suburban town that eventually took his name.

To pay the costs of elaborate architecture such as the Tudor Gothic structure of St. Philip Neri Catholic Church in Chicago's South Shore neighborhood, he borrowed by selling bonds. St. Philip Neri, with its rose windows and Italian marble, is one of the largest and most beautiful churches in Chicago.

But as neighborhoods have changed and parishioners have migrated toward the suburbs, grand buildings like St. Philip Neri have become a drain on the archdiocese's budget. The building is now ensconced in scaffolding, and most of its 1,700 seats stay empty on Sundays.

"A lot of the work done in the past, we're now correcting," said the Rev. Thomas Belanger, pastor of St. Philip Neri. "We're left with nothing in the bank. With the ongoing costs of trying to heat these monstrosities, you wouldn't build something like St. Philip Neri today."

Belanger said his parish has run at a deficit since 1992. It owes the archdiocese more than $2 million, which Belanger can't imagine will ever be reimbursed. Unless the parishes on the South Shore come up with a financial viability plan that works, some may have to be closed or consolidated, he said.

Kevin Marzalak, director of finance for the archdiocese, said that's precisely the purpose of a pilot plan to allow parishes to become less dependent on subsidies from the archdiocese, share best practices to make them more self-sustainable and encourage laity to revitalize their parishes.

O'Meara said the archdiocese is also preparing to launch a capital campaign to raise more than $300 million.

Diane Viacava, the lead analyst at Moody's who compiled the archdiocese's ratings report, said Chicago is the sixth diocese Moody's has rated. She said factors that worked in the archdiocese's favor included its leadership and governance, its deep assets and its revenue stream that comes largely from parish assessments and the Catholic cemetery system.

The only reason it did not get the highest rating was the questionable impact of the economic climate on parish giving and the unpredictability of sexual misconduct claims.

"They really do have a best practices that elevate them to the A1 level in terms of disclosure, in terms of leadership, and in terms of members on the council and the planning that they do," she said. "It's very strong positive indicators."

According to the Moody's report, proceeds from a bond sale would go toward refinancing $75 million in loans taken out to cover parish operations and sexual misconduct costs.

Fulfilling a promise not to compensate victims of clergy sex abuse with ordinary parish collections, the archdiocese has covered most of those costs by the sale of undeveloped property, insurance proceeds, other reserves and loans.

The cash also would replenish reserves used to cover $42 million of capital expenditures, the report said.

"You save money for a rainy day," Marzalak said. "You don't freeze up. You continue to minister and move on with the mission and hope that the cycle will return. We're now on a path to reduce that deficit."



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