CHICAGO Oct 12 Ahead of the sale of $1.35
billion of debt on Thursday, Illinois issued an ominous warning
to potential bond buyers that it may not have enough money to
make its fiscal 2017 pension payments on time.
The nation's fifth-largest state, which is limping through
its second consecutive year without a complete budget, said it
is possible that its five retirement systems may not receive
payments when due because the state's general fund may be low on
"A failure by the state to meet its payment obligations may
result in increased investment risk for bondholders," the state
said in a supplement to its bond sale prospectus released late
Illinois already has the lowest credit ratings among the 50
states. A budget impasse, along with a $111 billion unfunded
pension liability and a growing pile of unpaid bills, have
pounded Illinois' ratings into the low investment-grade level of
The supplement said that without full and timely payments,
the pension funds may have to sell assets to raise money to
cover retirement benefits. That in turn reduces investment
returns, driving up the unfunded liability. Illinois owes the
pension funds $7.826 billion in fiscal 2017, which ends June 30.
"(State Comptroller Leslie Munger) is doing everything she
can to make all the November pension payments," said Rich
Carter, her spokesman, adding that October payments will go out
A cash crunch forced Munger, who pays the state's bills, to
skip a $560 million pension payment in November 2015. It was
made up before the end of fiscal 2016.
Representatives of Governor Bruce Rauner and the retirement
systems did not immediately respond to requests for comment.
Bank of America Merrill Lynch is scheduled to price
Illinois' general obligation refunding bonds on Thursday.
The state is already paying a hefty price to sell its debt
in the U.S. municipal bond market, where its so-called credit
spread over Municipal Market Data's benchmark triple-A yield
scale is 162 basis points for 10-year bonds. By comparison,
California's spread is just 23 basis points.
(Reporting by Karen Pierog; Editing by Matthew Lewis)