S&P Downgrades Illinois Bond Rating

Jan 28, 2013

Credit www.wikipedia.com

Standard and Poor's has downgraded Illinois' General Obligation Bond rating to the lowest of any state in the nation.

S&P says Illinois' rating is A-minus with a negative outlook because of the state's ongoing pension problems. State Treasurer Dan Rutherford says bond rating agencies - like S&P - have been issuing negative outlooks for Illinois since the legislature approved an income tax increase in January 2011 that hasn't fulfilled its projected revenue boost for the state.

"A bong rating agency will look at the credit risk of a sovereign government like Illinois, similar to what a credit rating would be for an individual," Rutherford said. "So if you have a poor credit rating when you go to get a home mortgage you will pay more in interest because of your bad credit. The same thing exists for the bond rating agencies."

S&P also gave an A- rating to $500 million in general obligation bonds that the state plans to release in February.  The ratings agency also indicates an additional down-grade is possible. It says while it would be unusual for a state to fall into the “BBB” category, a lack of action on pension reform and the upcoming state budget challenges could result in further credit deterioration.

Standard and Poor’s is the third bond rating agency to issue a downgrade for Illinois since December because of the state's unsolved pension problems. Earlier this month, Fitch Ratings placed Illinois' general obligation bonds rating on negative watch. In December, Moody's Investors Services downgraded the credit outlook for the state of Illinois from stable to negative.