Another ratings agency downgrades Illinois credit

[WestVirginiaRebel]

Chicago Tribune:

Moody's Investors Service on Thursday downgraded Illinois' general obligation credit rating by one notch -- to the lowerst rating in the state's history -- following a move earlier this week by Fitch Ratings.

Moody's downgraded Illinois' $27 billion of general obligation debt to A3 from A2, with a negative outlook after state lawmakers last week failed to pass a plan to deal with a $100 billion unfunded public pension liability.

Even prior to the downgrade, Illinois had the lowest rating of any U.S. state.

"Our rating now assumes the government will not take action to reduce the state's pension liabilities any time soon," Moody's said in a statement.

"The legislature's political paralysis to date shows not only the magnitude of Illinois' unfunded benefit liabilities, but also the legal and political hurdles to legislation that would make pensions more manageable long term.”

The downgrade followed action on Monday by Fitch Ratings, which cut Illinois a notch to A-minus with a negative outlook. Standard & Poor's Ratings Services had downgraded the state to A-minus with a negative outlook in January. Any further downgrades by the three major rating agencies would put Illinois into the triple-B category, which is still considered investment grade.

Standard & Poors on Thursday said it was keeping Illinois' A- rating, but said the state was on a "credit precipice" due to lake of pension reform.

The downgrades come as Illinois had been expected to sell up to $1 billion of GO bonds as soon as this month. If the sale goes forward, the state likely would need to offer a higher interest rates on its securities because of the lower ratings.

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Illinois hits rock bottom and then goes further...

[Valin]

@WestVirginiaRebel

 

Illinois Continues Its Sad, Slow Slide

6/7/13

 

(Snip)

 

The higher borrowing costs that accompany credit downgrades are bad news for a state already struggling with its finances. This fact is not lost on Governor Pat Quinn, who has called lawmakers back to Springfield for a special session to get something passed before the state is hit with another downgrade.

 

The Governor is right to be anxious for a budget fix. Illinois has allowed this problem to drag on far too long; each day of delay is costing taxpayers. Unfortunately, there’s still no reason to be optimistic that the special session will succeed where past efforts failed. The legislature has been trying to get a bill through for well more than a year now. Three different plans have come up for a vote in the last 12 months alone. If there’s a compromise solution out there somewhere, it has hidden itself very well.

 

Maybe that explains why House Speaker Michael Madigan isn’t answering his phone: after the reform bill failed last Friday, Quinn called a special meeting with legislative leaders to formulate a plan to address the crisis; Madigan, however, was reportedly unreachable by phone, despite being made aware of the call in advance.

 

(Snip)

[Valin]

And the hits just keep on coming!!!

 

Moodys: True Unfunded Liability in Illinois Pension Fund is 65% higher than the State Says

Can anyone in the state government add and subtract?

Rick Moran

6/29/13

 

The worst funded US pension system is actually worse off than previously thought. Moodys Investors Service has calculated that the true underfunding in the Illinois pension system is 65% above what the state says it is.

 

In its report titled Adjusted Pension Liability Medians for U.S. States, Moodys calculated the unfunded liabilities for Illinois three largest state-run pension plans at $133 billion, compared to the states official calculation of $81.3 billion.

 

Illinois pension funds use overly optimistic assumptions in calculating their unfunded liability, including an expected 8% yearly average investment return. The new Moodys methodology uses more realistic market rates based on high-quality corporate bonds. The rate Moodys used for fiscal year 2011 was 5.67%, resulting in a $52 billion increase in the states unfunded liability.

(Snip)

[Valin]

SEC Gives Notice to Muni Bond Market

6/29/13

 

The past few years have been awful ones for government finances. It started when the public pension crisis began burning a hole in city and state budgets. It got worse when ratings agencies noticed, lowering the credit ratings of struggling states and making it much harder to borrow the money they need to keep services running. Illinois, where the pension crisis is worst, now has the lowest credit rating of any state in the country, and the other states with serious pension issues arent far behind. This is emerging as a perfect storm for these cities and states, many of which are finding it harder to borrow at just the moment when they need the money most.

 

Now these cities are facing a new problem: an increasingly active SEC looking to increase oversight of the bond markets. Although the SEC has less power to oversee cities than it does with banks and other financial institutions, it does have the authority to examine governments statements to bond investors for claims that could be misleading and punish offenders accordingly. As the Washington Post reports, the SEC has begun to exercise this ability much more often over the past few years. Earlier this year the SEC charged Illinois with securities fraud for misleading investors about the status of the states finances, then took similar action against Harrisburg and South Miami for statements made by officials and attorneys. Clearly, the SEC is sending a message:

 

(Snip)

 

This is bad news for the multitude of cities and states who desperately need to borrow, but where spotty finances and massive pension liabilities could spook the bond market. And amazingly, things could even get worse. If Detroit enters bankruptcy, as many believe that it will, it will send shockwaves throughout the municipal bond market that could make it even more difficult for these struggling cities to borrow. Governors and mayors, be warned.