Illinois bond buyers: Invest at your own risk

With a big bond borrowing coming, the three big credit rating services failed to go far enough in their warnings. A Bloomberg story says:

The [recent 67 percent] tax hike helped the state dodge a ratings downgrade, with Standard & Poor's affirming an A-plus rating with a negative outlook, Moody's Investors Service keeping its A1 rating with a negative outlook and Fitch Ratings affirming an A rating and revising the outlook to stable.

All three agencies said the state remained a credit concern due to its large structural budget deficit, huge unfunded pension liability and escalating debt issuance.

Considering the performance of these raters prior to the collapse of the housing bubble and financial institutions, you might even want to take these cautions with some...caution. 

 

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  • I had received a quarterly report from T. Rowe Price, in which their municipal bond fund manager said that the one thing he would not buy was State of Illinois bonds. Although one doesn't know for sure when that article was written, it probably was after the tax hike.

    Also, I had read in the Daily Herald that Illinois can only sell taxable debt to European investors. Therefore, whatever the rating services say, Americans won't buy. I wondered why the bonds were taxable, but I guess if only foreigners will buy, the Internal Revenue Code is of little importance to them.

    Of course, this only feeds the dimbulbs in State Government that say that the projected interest rate is less than for deadbeat countries and less than the late payment charge in state law, notwithstanding that an exorbitant amount of interest would still have to be paid by the taxpayers. Cf. the comments to yesterday's Tribune editorial.

    This also explains why the full rollback of the income tax to 3%, if it ever happens, was scheduled for 15 years, since the bonds that Quinn now wants, but the Republicans say they will block, are 15 year bonds.

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