Fitch Ratings last week downgraded Chicago’s motor-fuel tax bonds one notch to A-minus and assigned a negative outlook due to the rating’s link to Illinois’ credit.
The action affects $66.6 million of bonds from a 2008 issue and $114 million from a 2003 issue.
The bonds are secured by a first lien on motor fuel taxes but the revenues are distributed by the state and subject to an annual appropriation.
Because the revenue that supports debt service is subject to state appropriation, the rating is currently capped at one notch below Illinois’ general obligation rating.
Fitch recently downgraded the state’s GO credit to A with a negative outlook.
“Fitch remains concerned with the state’s ability to alter the distribution formula or identify more priority allocations, as distribution of the motor fuel tax revenues only occurs net of these prior allocations,” analysts wrote. “However this concern is somewhat offset by strong historical debt service coverage on the city’s motor fuel tax bonds.”
