(Adds Fitch rating)
CHICAGO, Aug 5 (Reuters) - Illinois’ ongoing budget battle led Standard & Poor’s Ratings Services and Fitch Ratings on Wednesday to drop the rating on more than $3 billion of bonds issued for an expansion of Chicago’s McCormick Place convention center.
Without a state budget for the fiscal year that started July 1, the Metropolitan Pier and Exposition Authority, which issued the bonds, informed bondholders on Monday that no tax revenue has been appropriated and that a $20.8 million monthly debt service deposit was not sent to the bond trustee last month.
To address the technical default, the Illinois Senate on Tuesday passed a bill allowing tax revenue earmarked to pay off the bonds to be transferred to the authority without a state appropriation until a fiscal 2016 state budget is enacted. The House may take up the measure next week.
S&P downgraded the bonds by seven notches to BBB-plus from AAA. Analyst John Sugden said the rating will remain at BBB-plus and on a watch list for another possible downgrade despite the legislation.
S&P said even though the bond trustee has enough funds to make the Dec. 15 debt service payment, the downgrade reflects its view that the bonds now constitute debt subject to state appropriation instead of special tax bonds. As a result, the rating was dropped to one notch below Illinois’ A-minus rating, which is also on an S&P watch list for a possible downgrade.
“This event does not affect the state’s (general obligation) rating but does underscore the fiscal challenges associated with the protracted budget stalemate,” S&P said in a statement.
Fitch said it downgraded the bonds to BBB-plus, from AA-minus.
In secondary market trading on Wednesday, the spread for some of the authority’s bonds over Municipal Market Data’s benchmark triple-A yield scale jumped to 136 basis points from 88 basis points on July 28. That involved $5 million of bonds due in 2028, according to MMD.
The Democrat-controlled legislature has resisted Republican Governor Bruce Rauner’s call for the wholesale adoption of his turnaround agenda that includes legislative term limits and business-friendly reforms before he considers additional revenue for the budget.
There was no sign of a budget breakthrough Wednesday although the Senate gave final approval to a bill stopping cost-of-living increases for state lawmakers in the current fiscal year. The bill now heads to the governor, who has criticized Democrats who control the legislature for allowing their paychecks to grow while Illinois struggles financially. (Reporting by Karen Pierog; additional reporting by Megan Davies; Editing by Chizu Nomiyama and Cynthia Osterman)