Illinois, one of the biggest muni bond issuers in the country is at risk of having its general obligation bonds downgraded to junk status. If the state is downgraded it would become the first in the nation to be rated junk.
The FT reports
Despite marathon talks, Democratic and Republican lawmakers were unable to agree on a budget by the end of the fiscal year that ended on Friday. Rating agencies had said that missing the deadline was likely to trigger a downgrade, and while talks continued over the weekend, it was looking increasingly likely that no deal will be agreed.
S&P and Moody’s, the two biggest rating agencies, relegated the state’s $25bn of “general obligation” debt to the lowest possible investment grade at the start of June. They warned that they would push it into non-investment grade territory — popularly called “junk” — if the legislature failed to pass a budget for a third year running.
“The rating actions largely reflect the severe deterioration of Illinois’ fiscal condition, a byproduct of its stalemated budget negotiations,” Gabriel Petek, an S&P analyst, said in a statement at the time. “The unrelenting political brinkmanship now poses a threat to the timely payment of the state’s core priority payments.”
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