S&P cuts Illinois' debt rating and warns it's at risk of entering a 'negative credit spiral'

Credit rating agency Standard and Poors lowered its rating on various bonds issued by Illinois one notch.

S&P lowered the state’s general obligation bonds one notch from ‘BBB-‘ to ‘BB+’ while cutting state appropriation bonds from ‘BB’ to ‘BB-.’

“The rating actions largely reflect the severe deterioration of Illinois’ fiscal condition, a byproduct of its stalemated budget negotiations, now approaching the start of a third fiscal year,” S&P Global Ratings credit analyst Gabriel Petek said in the release.

Petek also put Illinois on “CreditWatch negative” and warned that the state is at risk of entering a “negative credit spiral, where downgraded credit ratings would trigger contingent demands on state liquidity, further exacerbating its fiscal distress.”

Illinois is on the verge of going a third straight year without a budget after lawmakers failed to pass one in the spring session, according to WGN. It has more than $US14 billion in unpaid bills.

“If lawmakers fail to reach agreement on a budget with provisions designed to reduce the state’s structural deficit, it’s likely we will again lower the ratings,” Petek wrote.

Illinois isn’t alone in its struggle. Chicago has also had trouble managing its municipal debt, which is currently rated “junk” at Moody’s and one notch above junk at both Fitch and S&P.

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