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Rating Action:

Moody's assigns Baa3 to Illinois' $452 million April 2019 GO offering; outlook stable

15 Mar 2019

New York, March 15, 2019 -- Moody's Investors Service has assigned a rating of Baa3 to the State of Illinois' planned issuance of $452 million of General Obligation Bonds, Series of April 2019. The offering will consist of $300 million in Taxable Series of April 2019A and $152 million Series of April 2019B. The bonds are expected to be priced on March 26.

RATINGS RATIONALE

Illinois benefits from an economic base that is diverse, large and comparatively wealthy, and like other states it has strong powers to control its revenue and spending. However, these credit strengths have been increasingly overshadowed by unfunded pension liabilities and mounting fixed costs in recent years, reflecting ingrained weaknesses in its governance framework and policy decisions. As the costs of its debt, pension and retiree health benefits have consumed a growing share of its revenue, Illinois has run operating deficits, accumulated an unpaid bill backlog, and relied on long-term debt to fund operations.

Governor JB Pritzker, who took office in January, has proposed far-reaching policy changes to stabilize the state's finances and manage the long-term liability burden. He proposed $1.1 billion of new revenue for the year starting July 1, changes to pension contributions, and additional debt for both pension funding and payment of overdue bills. His longer-term objectives include moving the state's personal income tax to a progressive system from a flat rate, which would require amending the state constitution, and identifying public assets that could bolster state pension plans. Action on these and other initiatives by the Illinois General Assembly in coming weeks could affect the state's credit standing.

RATING OUTLOOK

The state's outlook was revised to stable in July 2018, following income tax increases that greatly reduced the state's structural budget gap and made near-term fiscal risks manageable.

FACTORS THAT COULD LEAD TO AN UPGRADE

- Adoption of a comprehensive plan to address pension liabilities

- Progress in lowering the bill backlog that does not rely on long-term borrowing

- Enactment of recurring financial measures that support sustainable budget balance

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Renewed growth in payment backlog that reverses progress attributable to 2017 financing

- Reduction in pension contributions to provide fiscal relief

- Substantial assumption of debt or pension liabilities accrued by local governments

LEGAL SECURITY

The bonds are secured by the state's full faith and credit pursuant to the General Obligation Bond Act (30 ILCS 330/17). The law prioritizes monthly set-asides for semi-annual debt service over other state expenditures, and it provides for an irrevocable and continuing appropriation of state funds for payment.

USE OF PROCEEDS

Proceeds of the April 2019A bonds will provide funds for the state's ongoing pension buyout programs which are intended to reduce liabilities by either buying out inactive pension participants or encouraging retiring participants to forgo 3% compounded automatic annual increases in future benefits. The April 2019B bonds will be used to refund certain outstanding GO bonds for interest cost savings.

PROFILE

With 12.7 million residents, or about 3.9% of the nation's total, Illinois ranks sixth by population among US states, based on US Census Bureau 2018 estimates. The state's gross domestic product, $822.5 billion in 2017, ranks fifth and accounts for about 4.2% of the nation's total.

METHODOLOGY

The principal methodology used in these ratings was US States and Territories published in April 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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 credit rating action on the support provider and in relation to each particular credit 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Edward Hampton
Lead Analyst
State Ratings
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Timothy Blake
MANAGING DIRECTOR
Municipal Supported Products
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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