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What an improved credit rating could mean for Illinois

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Illinois

* Brenden Moore looks at what could happen in the wake of the state’s recent credit upgrades…

Despite having the worst credit rating of any state, Illinois has not had issues finding investors to buy its “paper,” with many viewing the state’s risk of default as minimal. […]

“Illinois has been able to borrow at cheap rates for years now, partly because interest rates have been low,” [Marty Luby, a University of Texas professor who specializes in public finance] said. “So, on an absolute basis, Illinois’ been borrowing at really low rates. Relative to other states, there’s been a big spread, but they still have had access to capital even when they were one notch away from basically a junk bond.” […]

But, the ratings upgrade opens opportunities for “potentially more investment in capital from the state,” Luby said, as lower interest rates will lead to lower capital costs.

It could be good timing as a massive federal infrastructure bill looks more possible than it has in years.

“The other side of is that the state has tons of debt on its books currently,” Luby said. “So having a credit rating upgrade means that they can borrow more cheaply, which means that they may have opportunities to refinance the existing debt.”

posted by Rich Miller
Thursday, Jul 15, 21 @ 3:48 am

Comments

If I understand, refinancing outstanding debt is a bit tricky considering the interest previously tax deductible would not be so under a refunded status, however, with the size of particular debt issues I’m sure financial consultants and banks will push for refinancing as their fees would be substantial.

Comment by the Edge Thursday, Jul 15, 21 @ 8:01 am
1% a month for late pay, how about “refinancing” that first.

Comment by pay the vendors Thursday, Jul 15, 21 @ 8:05 am
- “So having a credit rating upgrade means that they can borrow more cheaply, which means that they may have opportunities to refinance the existing debt.”

It also means they can extend the terms and repayment schedules of the debt and cost the taxpayers billions.

Comment by Chicago 20 Thursday, Jul 15, 21 @ 10:36 am
==1% a month for late pay, how about “refinancing” that first.==

There’s nothing to refinance. The state is at or below a 30 day payment cycle overall. Vendors aren’t entitle to late pay until a bill is more than 90 days past due.

Comment by Demoralized Thursday, Jul 15, 21 @ 11:06 am
===The state is at or below a 30 day payment cycle===

This is accurate.

Comment by Rich Miller Thursday, Jul 15, 21 @ 12:10 pm
the Edge,

Not every refinance is a “scoop and toss” resulting in higher net finance costs for taxpayers. It is possible to refinance and capture benefits for tax payers. The details matter. The public sector has no business being in secondary markets (like CPS was with the interest rate swaps). However, refinancing debt to reduce net finance costs is a sound practice that can be done in both the private and public sector.

Comment by SN1848 Thursday, Jul 15, 21 @ 4:35 pm

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