OUTLOOK REVISED TO STABLE; $32 BILLION OF OUTSTANDING STATE DEBT AFFECTED
New York, January 06, 2012 -- Moody's Rating
Issue: General Obligation Bonds, Series A of January,
2012; Rating: A2; Sale Amount: $525,000,000;
Expected Sale Date: 1-11-2012; Rating Description:
General Obligation
Issue: General Obligation Bonds, Taxable Series B of January,
2012,; Rating: A2; Sale Amount: $275,000,000;
Expected Sale Date: 1-11-2012; Rating Description:
General Obligation
Opinion
Moody's Investors Service has lowered the State of Illinois'
general obligation bond rating to A2 from A1 and revised the state's
outlook to stable from negative. The A2 rating has also been assigned
to $800 million general obligation January 2012 Series A and Taxable
Series B bonds that the state has scheduled to price on January 11.
Proceeds will finance school, transportation and other capital projects.
We have also downgraded to A2 from A1 the rated portion of the state's
$2.47 billion of outstanding Build Illinois sales tax revenue
bonds, and to A3 from A2 $2.48 billion of Metropolitan
Pier and Exposition Authority and $73 million of Civic Center Program
bonds.
SUMMARY RATING RATIONALE
The downgrade of the state's long-term debt follows a legislative
session in which the state took no steps to implement lasting solutions
to its severe pension under-funding or to its chronic bill payment
delays. Failure to address these challenges undermines near-
to intermediate-term prospects for fiscal recovery. It remains
to be seen whether the state has the political willingness to impose durable
policies leading to fiscal strength, though in the recent past it
has reached consensus on difficult decisions, such as temporary
income tax increases enacted last year that stabilized state finances
and reduced the state's need for non-recurring budgetary
measures. Illinois retains the sovereign revenue and spending powers
common to all U.S. state governments. These powers,
along with Illinois' legal provisions giving G.O.
debt service priority over other state spending, support the move
to a stable outlook.
STRENGTHS
- Sovereign powers over revenue and spending
- Statutory provisions giving priority to debt-service over
other state expenditures
CHALLENGES
- Severe pension funding shortfall
- Chronic use of payment deferrals to manage operating fund cash
- Weak management practices reflected in pension under-funding
and payment delays
Outlook
The state's stable outlook reflects its sovereign powers over revenue
and spending, as well as statutory provisions establishing priority
of payment for G.O. debt service. Although the likelihood
of effective, proactive movement on major challenges appears minimal
at present, the state's stable outlook also relies on a demonstrated
ability to make politically difficult choices as the need arises.
WHAT COULD MAKE THE RATING GO UP
- Adoption of a credible, comprehensive long-term
pension funding plan
- Substantial progress in reducing payment backlog, and legal
framework or plan to prevent renewed buildup of late 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 contributions
PRINCIPAL RATING METHODOLOGY
The principal methodology used in this rating was Moody's State Rating
Methodology published in November 2004. Please see the Credit Policy
page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
Although this credit rating has been issued in a non-EU country
which has not been recognized as endorsable at this date, this credit
rating is deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 31 January
2012. ESMA may extend the use of credit ratings for regulatory
purposes in the European Community for three additional months,
until 30 April 2012, if ESMA decides that exceptional circumstances
arise that may imply potential market disruption or financial instability.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant 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 relevant 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
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the lead rating analyst and to the Moody's legal entity that has issued
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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
Marcia Van Wagner
Vice President - Senior Analyst
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 LOWERS STATE OF ILLINOIS' G.O. RATING TO A2 FROM A1, ASSIGNS A2 RATING TO PLANNED $800 MILLION ISSUANCE
