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

Both Moody’s and S&P have warned of further credit deterioration if Illinois enters a third year without a spending plan. Both companies rank Illinois only two steps above junk with negative outlooks, signaling the rating could fall again. No U.S. state general-obligation bonds have ever been rated below investment-grade, according to data going back to at least 1970.

Investors have to be prepared for the possibility, said Matt Fabian, a partner with Municipal Market Analytics Inc.

Illinois is “being managed as if it were a speculative credit,” Fabian said. “It’s hard to get on board and say that Illinois is a buy for anyone besides speculative investors.”

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Tim HollerIL, Illinois
Chicago Tribune

Emanuel's short-term budget solutions will cost $1 billion in interest

Matt Fabian, a partner at Concord, Mass.-based Municipal Market Analytics, said he is not convinced that the city has its budget problems solved and that it won't need to scoop and toss old bonds or borrow for judgments and settlements in the future to make ends meet.

"That is the promise from the mayor, and you can't fully dismiss that promise, but as an investor you have to assume they will do this again." Fabian said.

"We all know that the city does not have any extra money, so it makes sense that they would finance what they are going to do," Fabian added, "but this is a cost of the city not having liquid resources elsewhere. This is an example of in America why poor people fall farther behind, because they are forced to finance things that other people would just pay for."

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Tim HollerIL, Illinois