Illinois Morass Fuels Speculation It'll Be First Junk-Bond State

Bloomberg reports:

What’s worse than the worst? Illinois may find out.

The lowest-rated U.S. state is headed toward its third year of an unprecedented budget impasse as Republican Governor Bruce Rauner and the Democrat-led legislature repeatedly fail to agree on how to plug chronic deficits and halt the growing backlog of unpaid bills.

Both Moody’s Investors Service and S&P Global Ratings have warned that Illinois could be downgraded again, while investors are already demanding higher yields on its bonds than they do from borrowers that are on the cusp of junk, according to data compiled by Bloomberg.

“It’s getting harder and harder to find a reason to be optimistic for a budget,” said Ty Schoback, a senior analyst in Minneapolis at Columbia Threadneedle Investments LLC, which holds some Illinois debt among its $22 billion of municipal holdings. “That being said, this is politics -- you can’t predict. Two years ago, we were debating whether or not Illinois falls into BBB. Today, we’re debating whether it falls to junk status. If the status quo persists, what are we going to be debating in two years?”

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