CHICAGO — Times are tough for Illinois credits, but it's another story for issuers in Wisconsin and Michigan.
"It's interesting to hear about all of the issues about Illinois; Michigan went through this a few years ago but it seems we're past that and starting to turn around," Mary Martin, director of the Bureau of State and Authority Finance at Michigan's treasury, said Tuesday at The Bond Buyer's Midwest Municipal Market Conference.
"There's no Michigan premium or penalty now," Martin said. "Maybe there was a few years ago, when the state was struggling, and when Detroit filed for bankruptcy, that was a bad week for some Michigan deals in the market. But we really don't see that as an issue anymore."
The state budget director for Wisconsin was similarly upbeat. "I am from the great solvent state of Wisconsin, which has a nearly funded pension system," Michael Heifetz said. "We have a lot of good things to say."
The comments came as Illinois, the lowest rated state in the union, headed into a new fiscal year Wednesday amid a budget impasse with no resolution in sight.
Following the May 12 Moody's Investors Service downgrade of Chicago into junk territory and downgrades of other local Illinois issuers, financial advisor Adela Cepeda, president of A.C. Advisory Inc., said some of her clients are struggling to come up with a strategy to deal with ratings agencies. "I think it's wider than Illinois, but a major issue my issuers here are dealing with is how to get ahead of what's going on with the ratings agencies," she said. "It has led to some substantial dilemmas where issuers are really not interested in some ratings at all."
"You think that four agencies is not a lot to choose from, but if some issuers only require two, sometimes it isn't," she said. "I see the issuers really challenged in this area and I understand it."
Cepeda also named regulatory issues and shifts in the financial and municipal advisory sectors as challenges facing her clients.
The source of the problem is obvious for officials at Cook County, home to Chicago and one of the state's most pressured credits, according to Chief Financial Officer Ivan Samstein.
"Clearly the issue is the legacy liabilities," he said. "We're effectively in a debt trap in Illinois."
Samstein made his remarks just hours after county President Toni Preckwinkle formally proposed raising the county sales tax rate by one cent to generate roughly $500 million in new annual revenue. Nearly 90% of that would go to paying off the county's pensions, while another chunk would go to debt service.
"While I think that MCDC and other regulations are the focal points of the market, for those of us in Illinois, no doubt the credit challenges are challenges with being overleveraged and coming up with a long-term plan to address it," said Samstein.
Addressing the interest rate penalty that being an Illinois credit carries, Samstein said he attempts to offset it with improved documentation and communication with investors as well as timing the market to ensure the county doesn't try to borrow during a time of dislocation.
