CHICAGO –Chicago's motor fuel tax bonds and a Transportation Infrastructure and Innovation Act loan fell a notch Tuesday as S&P Global Ratings' moved the ratings down in tandem with its recent downgrade of the state's general obligation rating.
The motor fuel bonds issued in 2008 and 2013 and the TIFIA drawdown loan, which is supported by MFT, revenue were downgraded to the lowest investment grade level of BBB-minus from BBB and retain a negative outlook. The rating is notched at one level below the state's due to heightened appropriation risks. S&P recently downgraded Illinois to BBB with a negative outlook.
"The lowered rating reflects our recent downgrade of the state of Illinois' appropriation bond rating to BBB-minus," said S&P analyst Helen Samuelson. "Since an appropriation by the state is needed to annually release the pledged MFT revenues to the city, the rating can be no higher than the state's appropriation rating."
The state appropriated motor fuel tax distributions in the partial, stopgap budget approved over the summer ensuring that the city will receive payments for fiscal 2017. S&P began applying appropriation risk to the credit after fiscal 2016 payments were delayed amid the state's ongoing budget impasse. Last October, S&P dropped Chicago's $270 million of motor fuel-tax backed bonds six notches because stoppage.
The state eventually passed the needed appropriation to free up payments but the city was readying the use of other funds to meet debt service requirements.
"When the MFT revenue disbursement mechanism is reliably functioning, the MFT revenue stream provides excess coverage of debt service and allows the city to collect residual MFT funds. The series 2008 and 2013 bonds are not secured by a debt service reserve fund to provide liquidity in times of stress," S&P wrote.