Criteria change sends Build Illinois sales tax bonds down five notches

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Build Illinois sales tax revenue bonds absorbed a five-notch downgrade Friday following a revision to Fitch Ratings’ criteria for state dedicated tax bonds.

Fitch downgraded to A-minus from AA-plus $2.5 billion of the sales tax revenue bonds: $1.41 billion of senior obligation bonds and $1.08 billion of junior obligation bonds.

They were removed from rating watch negative, where Fitch had placed them April 4 following release of its revised criteria for rating U.S. state dedicated tax bonds.

The rating agency specified more limited situations in which a state dedicated tax security can be rated without regard to the state's general credit quality.

Fitch assigns Illinois a BBB issuer default rating, with a negative outlook.

The revised criteria include detail on circumstances in which a state dedicated tax security, while not considered distinct from the state's issuer default rating, can nonetheless be treated as stronger than, but still linked to, the state's general credit risk.

Fitch determined that the structure of the Build Illinois bonds enhances the prospects for full and timely payment, allowing for a rating above the state's IDR, but does not meet the revised criteria for rating them without regard to the IDR.

“The Build Illinois bond structure warrants a rating two notches higher than the state's IDR given the narrowing of the dedicated revenues through the additional bonds tests and the specific nature of the borrowing program,” according to Fitch.

The outlook on the Build Illinois debt is now negative, in line with the state’s rating outlook.

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