CHICAGO, April 16 (Reuters) - Fitch Ratings on Thursday dropped Illinois’ credit rating to a notch above junk, saying the state was in a tenuous position even before the severe economic downturn sparked by the coronavirus outbreak.
Illinois’ rating fell to BBB-minus with a negative outlook from BBB, marking Fitch’s first state downgrade since the COVID-19 pandemic swept across the nation, according to Eric Kim, a Fitch analyst.
“We are concerned with how the state is going to fare through what is clearly a significant economic dislocation,” he said.
Illinois is the lowest-rated U.S. state due to its huge unfunded pension liability and chronic structural budget deficits.
In the longer term, Kim said Illinois’ rating could slip below investment grade if it is unable to reverse nonrecurring measures it may undertake to bolster its budget during the downturn.
“We expect every state to do things that are nonstructural. But for Illinois, the credit concern is that as the economy begins to recover, the state may not be able to dial those back in a way that’s reflective of an investment-grade profile,” he said.
Previously, Moody’s Investors Service and S&P Global Ratings, which each rate Illinois a notch above junk, revised their outlooks for the state to negative from stable over virus-related concerns.
Governor J.B. Pritzker announced on Wednesday that his state faces a $7.3 billion revenue loss for the current and next fiscal year as a result of fallout from the virus outbreak. He also said the state would do a $1.2 billion cash flow borrowing to boost budget liquidity.
Like many other states, Illinois is under a stay-at-home order that has shuttered nonessential businesses and services. Its jobless rate climbed 1.2 percentage points to 4.6% in March, according to data released on Thursday.
Illinois reported 25,733 coronavirus cases including 1,072 deaths as of Thursday. (Reporting By Karen Pierog; Editing by Tom Brown)