October 9, 2017 / 9:13 PM / 2 years ago

Illinois keeps BBB-minus S&P rating for $6 bln bond sale

CHICAGO, Oct 9 (Reuters) - Illinois on Monday maintained a BBB-minus rating and stable outlook from S&P Global Ratings for the state’s upcoming $6 billion bond sale aimed at shrinking a huge unpaid bill backlog.

While the credit rating agency affirmed the lowest investment grade rating, it cautioned that the nation’s fifth-largest state still faces fiscal challenges that could push the rating into junk.

Bond proceeds will be used to pay off some of the nearly $16 billion of bills from vendors and service providers the state accrued during its unprecedented two-year budget impasse, which ended in July with the enactment of a fiscal 2018 spending plan.

S&P said while the new budget eased concerns over a liquidity crisis for the state and reduced the odds for a rating downgrade, it includes some “doubtful” savings and nonrecurring revenue.

“If the bonding plan is not paired with additional fiscal adjustments, the state could be left with a higher tax-supported debt burden and - once again - an escalating backlog of unpaid bills,” S&P said in a statement.

That in turn could undermine Illinois’ ability to deal with its $130 billion unfunded pension liability, it added.

The state will offer $1.5 billion of tax-exempt general obligation bonds for competitive bidding on Oct. 17 in three series maturing in 2018, 2019 and 2029. During the week of Oct. 23, a team of senior underwriting firms will price another $4.5 billion of GO bonds.

The Democratic-controlled state legislature’s enactment of a budget and an income tax rate increase over Republican Governor Bruce Rauner’s vetoes allowed Illinois, the lowest-rated U.S. state, to avoid downgrades to junk.

The new bonds will also be rated by Moody’s Investors Service and Fitch Ratings, according to the bond prospectus.

Reporting by Karen Pierog; Editing by Matthew Lewis

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