* Yvette Shields at the Bond Buyer…

Illinois moved another step back from the ratings brink Thursday afternoon, as Moody’s Investors Service revised the outlook to stable from negative on its Baa3 rating, which was affirmed.

The action gives Illinois a bit of space above speculative-grade status, though the rating itself remains at the lowest investment grade.

S&P Global Ratings on March 9 moved the outlook to stable on its BBB-minus rating; Fitch Ratings remains at BBB-minus with a negative outlook.

* From Moody’s…

Moody’s Investors Service has revised the outlook of the state of Illinois to stable from negative, while affirming the Baa3 rating on the state’s general obligation bonds. […]

Affirmation of the state’s rating and the revision of its outlook to stable reflect the state’s financial performance through the pandemic, in combination with increased levels of federal support that will moderate near-term fiscal and economic pressure. State and local government funds expected under the latest federal aid package may help the state repay deficit financing loans, support its financially pressured local governments and spur employment, income and tax revenue growth. While credit risks raised by the pandemic during the past year are receding, the longer-term challenges associated with the state’s very large unfunded post-employment liabilities remain. The state’s Baa3 rating is supported by a large, diverse economy with above-average wealth, and it benefits from powers over revenue and spending. […]

RATING OUTLOOK

The stable outlook indicates the state’s capacity to manage near-term fiscal pressures while carrying a heavy long-term liability burden.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

– Enactment of recurring financial measures that support sustainable budget balance

– Decisive actions to improve funding of the state’s main pension plans

– Progress in lowering a backlog of unpaid bills that does not rely on either long-term borrowing or a significant decrease in non-operating fund liquidity

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

– Fiscal measures that greatly add to the state’s near- or long-term liabilities, including reductions in pension contributions to provide fiscal relief

– Large or persistent structural imbalance that leads to significant increase in the state’s unpaid bills or other liabilities

– Substantial assumption of debt or pension liabilities accrued by local governments

So, if the state can really tackle that bill backlog, a ratings increase may be in the cards. Never would’ve figured that could happen when this pandemic started.

*** UPDATE *** Comptroller Mendoza…

Moody’s Investors Service has changed its outlook on Illinois bonds from “negative” to “stable.” That’s a signal to investors that Illinois’ financial stability is moving in a better direction.

It follows S&P Global Ratings’ announcement March 9 that the rating agency was changing its outlook on Illinois bonds from “negative” to “stable.”

Moody’s cited “the state’s financial performance through the pandemic, in combination with increased levels of federal support that will moderate near-term fiscal and economic pressure.”

“Illinois still has a long way to go, but these two changes in outlook signal to investors that Illinois is heading in a better direction,” Illinois State Comptroller Susana A. Mendoza said. “The ratings agencies make clear that Illinois using its funds from the American Rescue Plan to pay down debt is the most responsible path forward for the state’s finances and the best way for the state to achieve an upgrade in its ratings.”