(Bloomberg) -- As Chicago awaits the ruling on whether MayorRahm Emanuel’s plan to save its retirement funds from insolvency isdead or alive, investors are already marking the fight down as aloss that will strain city coffers and boost pension costs by billions.

Read: Illinois bid to solve historic pensionshortfall dies

Conning, which oversees $11 billion of municipal bonds includingChicago debt, has encouraged investors to reduce their holdings formore than a year, and said the projected negative ruling affirmsthat view.

Wells Fargo Asset Management, which holds $475 million ofChicago general obligations, said the market is “emotionallyprepared” for the loss, and hasn’t materially changed position.

The Illinois Supreme Court is weighingwhether to uphold or overturn a lower court’s July ruling thatdeemed the restructuring of two non-public-safety retirement fundsillegal.

If the overhaul is not upheld, it’s expected that the unfundedliabilities of the municipal pension fund would increase by $2billion, according to the Civic Federation, which cited actuarialreports.

Moody’s Investors Service said Nov. 10 that rejecting thepension fix could pressure Chicago’s credit quality, but hasfactored such a decision into its speculative- grade rating on thecity that has a $20 billion pension shortfall.

“As an investor, you have to assume that the city is going tolose,” according to Matt Fabian, a partner at Concord,Massachusetts-based Municipal Market Analytics, who said the cityis still a good purchase for investors seeking tax-exempt income.“The city doesn’t have many triggers left to pull.”

After shortchanging its pensions by billions over the lastdecade, the city enacted a plan Jan. 1 to make the laborer andmunicipal workers’ pensions 90 percent funded by the end of2055.

The move forces employees and the city to pay more whiletrimming cost-of-living increases.

Bond prices for the most-actively traded Chicago debt over thelast three months have climbed since a circuit court judge struckdown the pension changes in July. The city council passed a 2016spending plan on Oct. 28 that includes a record property taxincrease to fund police and fire pensions.

A portion of taxable Chicago debt that matures in January 2033traded Nov. 20 for an average of 106 cents on the dollar to yield6.8 percent, up from 102 cents to yield 7.2 percent on July 24, theday of the lower court’s decision.

Unions that sued to block changes say benefits cuts make theplan unconstitutional, while the city argues this will keep thefunds from running out of money in the next 10 to 13 years.

The justices heard oral arguments on Nov. 17 in Springfield, thestate capital.

Stephen Patton, the city’s lawyer, noted that most of the unionsthat represent the affected workers supported the changes. Hesought to distinguish the fix from the state’s act in May that wasfound unconstitutional.

Under consideration

“The act avoids this looming disaster for the funds and theirparticipants by massively increasing the city’s contributions andimposing a new obligation that the city must pay each year whateveramount the funds’ actuaries determine is necessary to ensure thatthe funds are fully funded and that all pensions will be paid,”Patton told the justices in his opening remarks.

The case is under consideration, and a decision will comewhenever the justices are prepared to release one, said BethanyKrajelis, a spokeswoman for the court. There’s no deadline ortimeline on a decision, she said.

Lawyers for unions that sued argued that the changesunquestionably cut benefits, making it illegal as Illinois’sconstitution bans reducing worker retirement benefits.

Market analysts including Fabian, Paul Mansour of Conning andDan Heckman of U.S. Bank Wealth Management don’t expect much of amarket reaction, unless the justices reverse the lower court’sdecision in a surprise move.

Longer view

“If the city wins, you could see some positive price action justbecause it’s been void of victories from a financial standpoint,”Gabe Diederich of Wells said. After the win on higher propertytaxes rallied Chicago bonds, a positive court ruling on the pensionoverhaul “just shows they’re taking steps, and they’re taking stepsthat are being either recognized, or upheld that can get putthrough.”

While a favorable ruling on the municipal and laborers pensionswould certainly be a positive, it doesn’t change the "long-termview” that the city still has high pension obligations that theyneed to cover and meet, said Mansour, who oversees funds forinsurance companies.

If the court doesn’t uphold the pension changes asconstitutional, that will "severely limit” how the city can manageits mounting retirement debt, said Laurence Msall, president of theCivic Federation, which tracks the city’s finances.

“If the courts don’t allow it to negotiate benefit changes thatprotect the fund, then that’s going to put additional financialpressure on already a severely strained city government,” Msallsaid. “It will bode ill for Chicago public schools and all otherlocal governments throughout the state of Illinois that arechallenged to meet their pension obligations.”

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