PROVIDENCE, R.I. — Standard & Poor's removed Rhode Island from credit watch negative three days after state lawmakers included a $12.3 million payment for 38 Studios moral obligation debt in the state budget.
In an early-evening statement June 18, S&P affirmed its ratings on Rhode Island's general obligation, appropriation and moral obligation bonds. Gov. Lincoln Chafee, who supported paying the 38 Studios debt despite his initial opposition to the proposal as a candidate four years ago, has said he intends to sign the $8.7 billion spending plan for fiscal 2015.
State Director of Administration Richard Licht said paying the debt was important for Rhode Island's reputation. "The House speaker, the Senate president, the governor and the general treasurer all support paying it. No one in a position of major responsibility has said we shouldn't," he said in an interview in his Smith Hill office.
Rhode Island had been on credit watch negative since May 12.
S&P's ratings are AA on GO debt, AA-minus on appropriation debt and A on moral obligation-backed bonds, except those issued for 38 Studios, the failed video game owned by former Boston Red Sox pitcher Curt Schilling. S&P rates those bonds BBB.
The rating agency said in a statement that the BBB "reflects our view that recurring legislative debate about appropriating for debt service for those bonds — after 38 Studios' bankruptcy — indicates diminished support for this debt and a higher degree of risk relating to the repayment of these bonds."
The Rhode Island Economic Development Corp. in 2010 issued a $75 million loan guarantee to Schilling's company, backed by the state's moral obligation. 38 Studios, though, shut its doors in May 2012 and filed for Chapter 7 bankruptcy.
Both chambers overwhelmingly approved paying the debt as they did last year, but only after heated debate. Last year's payment was $2.5 million.
Rating agencies warned Rhode Island of a possible downgrade, saying moral obligation debt was tantamount to general obligation.
