Adem Tumerkan Blog | Illinois Headed For Junk Rating And Its Just Beginning | Talkmarkets
Editor-In-Chief at Palisade Research
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My name is Adem Tumerkan and I am the Editor-in-Chief of Palisade Research. 

I'm 26 years old. Born contrarian and skeptic. I like the mining sector but I'm really a contrarian/value investor that ... more

Illinois Headed For Junk Rating And Its Just Beginning

Date: Wednesday, June 14, 2017 11:08 PM EDT

Yesterday, Illinois unofficially accepted their fate that they will be 'junked'.

It begs to question why haven't investors realized this yet. Maybe because the last decade of ZIRP (zero interest rate policy) has forced yield starved investors into eating anything offering more than the paltry U.S. treasury bonds.

No matter how rotten. . .

Illinois has negotiated lower credit rating termination triggers for its interest-rate swap deals with banks, which stood to pocket fat fees if the state is downgraded to junk as soon as next month, a spokeswoman for the governor's office said on Monday - wrote Reuters.

Now, when the broke state gets their credit rating knocked down to junk status, they wont be forced to pay roughly $40 million in fees to banks. 

But, if they get knocked down again to the second level of junk status, they will have to pay these high fees. That is BB for S&P and Ba2 with Moody's.

This only gives them borrowed time. . .

But, most importantly, this move tells us they are preparing to bedowngraded again.

It is not an 'if they will be junked' question, but rather a 'when willthey be junked' question. 

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