Illinois's Junk Bonds

Friday October 16, 2015

•  credit ratings •  Illinois •  lottery •  public affairs •  public economics •  public finance •  public financial management •  risk management • 

The Illinois Lottery has stopped paying winners. As of this week, winning $600 or more gets you an IOU. Setting aside how bad it looks when the house refuses to pay up, this is default. So why does Illinois still have bond ratings in the upper grades?

Well, Moody’s has a strict definition of default:

  1. Missed payment on a debt obligation,
  2. Receivership or bankruptcy,
  3. Distressed exchange, or
  4. Change in payment terms.

Failing to pay a lottery winner sure sounds like a missed payment to a creditor. So what gives? The outlook is negative from the three major agencies. Standard and Poor’s cut the U.S. sovereign rating for just talking about the debt ceiling. It’s time to take action and cut Illinois to junk. Given an across the board increase in borrowing costs, the political leaders of the state may finally see fit to clean up the finances.

Image by Farrokh Bulsara / Pixabay.