KBRA has assigned a long‑term AA+ rating with a Stable Outlook to the State of Illinois, its Build Illinois Sales Tax Revenue Bonds, and the Junior Obligation Series A and B due June 2026. The agency also affirmed the same rating for the State’s outstanding parity junior obligations, signaling continued confidence in the credit quality of these revenue‑secured instruments.
KBRA Assigns AA+ Rating to Illinois Junior Bonds
KBRA’s rating action covers three distinct issuances: the State of Illinois itself, the Build Illinois Sales Tax Revenue Bonds, and the Junior Obligation Series A and B (June 2026). All three received a long‑term AA+ rating with a Stable Outlook. In addition, KBRA affirmed the AA+ rating with a Stable Outlook for the State’s parity junior Build Illinois Bonds, which remain outstanding.
Credit Structure and Coverage Highlights
The rating reflects several credit positives. Security provisions include a priority lien on State sales tax revenues that sits behind debt service on the senior Build Illinois Bonds, a continuing appropriation requirement, and strong non‑impairment language. The junior bonds are subject to an additional bonds test (ABT) that requires 10.2 times coverage of the minimum amortization debt service (MADS) on combined debt, limiting over‑leverage risk. Over the past five fiscal years, the statewide sales tax base has supported combined lien debt service coverage of 30.0 times or higher, underscoring robust revenue backing.
Potential Risks and Rating Sensitivities
KBRA identified credit challenges tied to the reliance on sales tax revenues, which can be affected by broader economic conditions. However, the agency noted that high coverage ratios and the restrictive ABT mitigate this risk. In its sensitivity analysis, KBRA listed two scenarios: an upgrade could occur with accelerated, sustained growth in pledged revenue collections and manageable debt levels; a downgrade, while deemed unlikely, could result from issuing senior and junior bonds up to their ABTs combined with a catastrophic economic downturn that significantly reduces sales tax revenues.
Key Takeaways
- KBRA assigned a long‑term AA+ rating with a Stable Outlook to the State of Illinois, its Build Illinois Sales Tax Revenue Bonds, and Junior Obligation Series A and B (June 2026).
- The junior bonds must maintain a 10.2 × coverage of MADS under the additional bonds test, and the State’s sales tax base has delivered debt service coverage of 30.0 × or higher for the last five fiscal years.
- Rating sensitivities cite potential upgrade from accelerated revenue growth and downgrade only under a severe, lasting drop in sales tax collections combined with maximum ABT issuance.
FinanceInsyte's Take
The AA+ rating confirms that Illinois’ sales‑tax‑secured financing remains well‑backed despite inherent revenue volatility. Executives should monitor the State’s sales‑tax performance and any future issuances that could approach the ABT limits, as those factors drive the narrow upgrade and downgrade scenarios outlined by KBRA.
Source: Businesswire
