KBRA Assigns AA+ Rating to State of Illinois Build Illinois Bonds (Sales Tax Revenue Bonds), Junior Obligation Series A, B, and C of February 2024; Affirms Parity Debt; Outlook is Stable
3 Jan 2024 | New York
KBRA assigns a long-term rating of AA+ with a Stable Outlook to the State of Illinois Build Illinois Bonds (Sales Tax Revenue Bonds), Junior Obligation Series A, B, and C of February 2024. KBRA additionally affirms the long-term rating of AA+ with a Stable Outlook for the State of Illinois' parity Build Illinois Bonds (Sales Tax Revenue Bonds), Junior Obligation.
KBRA’s Stable Outlook reflects the ample coverage of junior obligation debt service, supported by a broad-based, statewide source of revenues. The Outlook further reflects KBRA’s expectation that pledged sales tax revenues will continue to grow at a modest pace providing continued ample coverage of Build Illinois Bond obligations, and that future debt issuance authorized under the Act will not materially dilute coverage levels.
Key Credit Considerations
The rating actions reflect the following key credit considerations:
- Security provisions are strong and include a priority lien on the State sales tax revenues after payment of senior bonds, a continuing appropriation requirement, and strong non-impairment language.
- Additional bonds test (ABT) requires 10.2x coverage of MADS, which significantly restricts the potential to over-leverage.
- Expansive and diverse state-wide sales tax base that has historically provided extraordinary coverage of over 40.0x ADS for combined senior and subordinate Bonds.
- Bonds are secured by sales taxes, which may at times be adversely affected by economic factors. Nevertheless, strong coverage levels and a highly restrictive ABT insulate outstanding Bonds from associated risks.
- Accelerated growth in pledged revenue collections, coupled with manageable debt levels.
- While unlikely, an instance wherein the State leverages debt levels to the ABT in combination with an extremely significant economic downturn that results in a sharp reduction in State sales tax revenues.
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