Illinois earns sigh of relief as Moody's maintains credit rating
lllinois escaped more bad fiscal news on Thursday when one of the three major U.S. credit rating agencies opted to keep the state's credit rating one level above "junk."
Moody’s Investor Service placed Illinois’ general obligation bond rating under review on July 5 for a possible downgrade, which it had been threatening since the spring legislative session and the ongoing budget impasse.
On Thursday, the agency confirmed that the state's rating would remain at Baa3, which carries a negative outlook but does not make Illinois the first state to earn a "junk" rating. Moody's warned, however, that while the new budget helped keep the rating stable, it does nothing to address the state's record level of pension debt and another downgrade is possible in the next two years.
Moody's also kept the Metropolitan Pier and Exposition Authority (MPEA) at Ba1, still below investment grade and one notch lower than the state’s because it is dependent on annual state funds.
Standard and Poor’s Financial Services downgraded MPEA and the Illinois Sports Facilities Authority bond status to junk in June when S&P also brought down the state’s status to BBB-, one level above investment grade.
In its summary explaining the confirmation of the bond statuses, Moody’s noted that the passing of the budget was the primary factor in keeping the current levels.
“Together with internal and external borrowing provisions in the legislation, the tax increases will help contain a backlog of unpaid bills that has been hovering above $14 billion in recent weeks,” Moody’s said. “The legislation brought an end to a two-year period in which the state operated without a comprehensive budget, covering many of its expenses under court orders or consent decrees rather than standard appropriations.”
Entities including the MPEA and ISFA were concerned with the threat of another state bond decrease because their bond rating is kept at a level below the state’s rating. A state downgrade would result in an even lower score for the groups. As the rating lowers, investors become less willing to purchase the bonds, thus increasing the financing costs. For example, ISFA would have to pay more to refinance the debt of Soldier Field.
“The Soldier Field bond debt is a growing concern for the authority,” Dana Phillips Goodum, ISFA’s chief financial officer, said in a recent House Appropriations-Public Safety Committee hearing.
MPEA owns the McCormick Square campus, which contains the largest convention center in North America, and ISFA constructs and renovates sports stadiums for Illinois professional sports teams and owns Guaranteed Rate Field. It also provided funding for the redevelopment of Soldier Field.
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