Action applies to approximately $33 billion of outstanding general obligation and related debt
New York, December 13, 2012 -- Moody's Investors Service has revised the State of Illinois'
credit outlook to negative from stable, while affirming the state's
general obligation debt rating at A2. The state has about $28
billion of G.O. bonds outstanding. We have also affirmed
related ratings assigned to state borrowings, including about $2.6
billion of debt issued by the Metropolitan Pier & Exposition Authority,
rated A3, and the state's Build Illinois sales tax revenue
bonds, rated A2, of which $2.7 billion are currently
outstanding. The negative outlook is linked to ratings on the G.O.
as well as the related credits.
SUMMARY RATING RATIONALE
The negative outlook reflects our view that the state's pension
funding pressures are likely to persist and perhaps worsen in the near
term. Moreover, fiscal 2014 marks the last year before Illinois'
2011 income tax increases are partly unwound, putting the state
on track to deal with simultaneous growth in pension funding needs and
loss of revenue. If the legislature in coming weeks or months enacts
significant pension reforms, they are almost certain to be challenged,
given the state's constitutional protection of retiree benefits.
Political pressures, coupled with the threat of litigation,
may mean that any reforms enacted have only a marginal effect on liabilities.
Despite a diverse economy with above-average wealth, lackluster
demographic and economic characteristics indicate that, even with
continued US economic improvement, the state's existing tax
structure will not provide enough revenue to address the rising cost of
pension benefits and other state expenses. In addition, the
state's payment backlog remains high.
STRENGTHS
-- Sovereign powers over revenue and spending
-- Statutory provisions giving priority to debt service
over other state expenditures
-- Large, diverse, and wealthy economy
CHALLENGES
-- Severe pension funding shortfall
-- Chronic use of payment deferrals to manage operating
fund cash
-- Long-term weak management practices reflected
in pension under-funding and bill payment delays
OUTLOOK
The negative outlook reflects the possibility that the state will fail
to make substantial progress addressing its credit challenges in the near
term.
WHAT COULD MAKE THE RATING GO UP
- Implementation of a credible, comprehensive long-term
pension funding plan
- Substantial progress in reducing payment backlog, with
adoption of a legal framework or plan to prevent renewed buildup of bills
WHAT COULD MAKE THE RATING GO DOWN
- Early phase-out of 2011 tax increases without offsetting
binding expenditure actions, increasing the structural gap
- Further deterioration in pension funded status or failure to
make legally required pension contributions in full
- Failure to enact pension reforms, or passage of reforms
that have limited impact on liabilities or are used to justify reductions
in near-term pension contributions
RATING METHODOLOGY
The principal methodology used in rating the state's general obligation
debt was Moody's State Rating Methodology published in November 2004,
the principal methodology used in rating the Metropolitan Pier and Exposition
Authority's debt was the Fundamentals of Credit Analysis for Lease-Backed
Municipal Obligations published in December 2011, and the principal
methodology used in rating the Build Illinois Sales Tax bonds was US Public
Finance Special Tax Methodology published in March 2012. Please
see the Credit Policy page on www.moodys.com for a copy
of these methodologies.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Please see the credit ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Edward Hampton
Vice President - Senior Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Emily Raimes
VP - Senior Credit Officer
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's revises State of Illinois' rating outlook to negative from stable; general obligation rating affirmed at A2
