Fitch: Illinois’ Delayed Pension Payment Could Contribute to Future Downgrades

Fitch downgraded Illinois’ bond rating this week to BBB-, and the state’s recent decision to delay its November pension payment is a credit negative and could contribute to further downgrades, according to the ratings agency.

The state’s “exceptionally high” unfunded pension liabilities played a role in the downgrade, but the primary catalyst was the state budget crisis.

Still, Fitch noted that the state’s decision to delay November’s $560 million pension payment could contribute to future credit downgrades.

From Crain’s Chicago Business:

Fitch Ratings on Monday downgraded Illinois’ rating on $26 billion in outstanding bonds because of the [budget] crisis, and Moody’s Investors Service warned that the state’s inability to make its November pension payment could further hurt its already dismal credit rating.

[…]

Fitch cited lawmakers’ budget failure, Illinois’ above-average debt and “exceptionally high” unfunded pension liabilities in lowering the rating on general obligation bonds to BBB-, a few levels above what’s considered “junk” status.

Last week, Munger said Illinois won’t be able to make a scheduled $560 million payment to its pension funds because of cash flow problems. While Moody’s statement doesn’t indicate a change in Illinois’ rating, the agency said the missed payment could be a factor in future action.

Illinois currently has the worst-funded pension systems and lowest credit rating of any state.

Illinois has the lowest credit rating in the country.