BlackRock Calls For a Muni Market Strike in Budgetless Illinois
- Lowest-rated U.S. state plans to borrow $550 million next week
- Investors should consider denying it market access, Hayes says
For years, Illinois has found the municipal-bond market open whenever it needs to raise money, despite budget deficits, worst-in-the-nation pension shortfalls and a political paralysis so severe it’s headed for a second year without even a blueprint for what it should be spending.
It’s about time to shut the doors on the state, says BlackRock Inc., the world’s largest money manager.
“We as municipal market participants should really be penalizing in some way, by almost not giving them any access to the market,” Peter Hayes, who oversees $119 billion as head of munis at BlackRock, said in New York on Wednesday. “Think about it -- they’re a state without a budget, they refuse to pass a budget, they have the lowest funded ratio on their pension of any state, and yet they’re going to come to market and borrow money.”
So-called bond vigilantes, once feared for enforcing restraint on spendthrift governments, have been all but absent from the $3.7 trillion municipal market, even after Detroit filed a record bankruptcy in 2013 and Puerto Rico began veering toward a default on its $70 billion of debt over the past two years.
Illinois, the lowest-rated U.S. state, this week announced plans to borrow $550 million for capital projects on June 16. The bond documents were released as Republican Governor Bruce Rauner and the Democrat-led legislature remain at an unprecedented impasse over a spending plan for the fiscal year that started July 1, 2015. The state also lacks a budget for the next 12 months......MORE