May 12 Rhode Island will suffer a dramatic downgrade to its 'AA' credit rating if lawmakers allow a default on bonds the state backed for ex-Red Sox pitcher Curt Schilling's now-defunct video game company, Standard & Poor's Ratings Services warned on Monday.
The state has no legal obligation to pay debt service on the $75 million of bonds it issued in 2010 on behalf of 38 Studios, Schilling's company, and the bonds are insured. But the state pledged its "moral obligation" to pay, and now legislators are questioning whether to do so.
S&P also cut the 38 Studios' bonds themselves to 'BBB' from 'A' on Monday. And it placed those bonds, Rhode Island's general obligation bonds, appropriation debt and moral-obligation backed bonds on Creditwatch negative. (Reporting by Hilary Russ, editing by G Crosse)