What does ‘it’ indicate?

In the example:

Things couldn't have been worse.
Filch took them down to Professor McGonagall's study on the first floor, where they sat and waited without saying a word to each other. Hermione was trembling. Excuses, alibis, and wild cover- up stories chased each other around Harry's brain, each more feeble than the last. He couldn't see how they were going to get out of trouble this time. They were cornered. How could they have been so stupid as to forget the cloak? There was no reason on earth that Professor McGonagall would accept for their being out of bed and creeping around the school in the dead of night, let alone being up the tallest astronomy tower, which was out-of-bounds except for classes. Add Norbert and the invisibility cloak, and they might as well be packing their bags already.
Had Harry thought that things couldn't have been worse? He was wrong. When Professor McGonagall appeared, she was leading Neville.
"Harry!" Neville burst Out, the moment he saw the other two. "I was trying to find you to warn you, I heard Malfoy saying he was going to catch you, he said you had a drag --"
Harry shook his head violently to shut Neville up, but Professor McGonagall had seen. She looked more likely to breathe fire than Norbert as she towered over the three of them.
"I would never have believed it of any of you. Mr. Filch says you were up in the astronomy tower. It's one o'clock in the morning. Explain yourselves."

What does the yellow ‘it’ indicate?