Illinois will sell $725 million of junior obligation tax-exempt sales tax revenue bonds in a competitive deal pricing on Tuesday.
The state will issue $276 million of Series 2025A bonds, $218 million of Series 2025B bonds and $231 million of Series 2025C bonds. The bond proceeds will fund capital projects across the state.
The bonds have a first and prior claim on the state share, 5%, of a 6.25% unified sales tax and a first lien on revenues deposited into the Build Illinois Bond Retirement and Interest Fund.
There is no debt service reserve fund for the junior bonds, but they are secured by amounts on deposit in the junior obligation debt service fund and the general reserve fund, according to a Feb. 28
The Series A bonds, which have a final maturity in 2035, are not subject to optional redemption. The Series B and C bonds, which mature in 2036 through 2045, include a typical municipal 10-year call provision.
The current authorization for Build Illinois Bonds is $11.36 billion and covers public infrastructure and transportation; economic development; education; and environmental protection projects.
Of that total, $6.78 billion has been issued and $4.58 billion remains unissued, according to the investor presentation.
Prior to the issuance of the Series 2025 bonds, $2.28 billion in principal was outstanding, $0.65 billion of that from senior lien bonds and $1.63 billion from junior lien bonds.
Illinois had $40.42 billion in total outstanding bond debt as of Dec. 31, according to the state comptroller's office.
Co-bond counsel on the Series 2025 deal are Katten Muchin Rosenman and Charity & Associates. The municipal advisor is Public Resources Advisory Group.
Fitch Ratings rates the bonds A-plus. Kroll Bond Rating Agency rates the bonds AA-plus. S&P Global Ratings assigns the bonds an A rating. The outlooks on all ratings are stable.
In a rating report, Fitch said the ratings reflect an expectation that pledged state sales tax deposits will rise with inflation, as well as a debt structure that can survive significant decline while preserving debt service coverage and pledged deposits that are differentiated from the general operations of the state.
"Fitch's baseline economic expectation is that U.S. inflation will be 2.8% by the end of 2025," said Eric Kim, senior director and head of U.S. state ratings at Fitch. "The strength and resilience of the aggregate U.S. consumer continues to be underpinned by a strong labor market and still-strong household balance sheets and finances. Fitch expects consumer spending growth of 2.6% in 2025, a slight deceleration from 2.8% in 2024.
"Spending on goods and services… continues to rise apace," he added. "However, the rapidly changing U.S. tariff landscape represents a significant downside risk to consumer spending growth."
Fitch said in its rating report that it caps the ratings on Build Illinois bonds at two notches above the state's A-minus issuer default rating, based on "security-specific considerations."
Kim said Fitch generally limits state dedicated tax bonds to three notches above the state's IDR.
"The limited scope of the pledged revenue used for debt service, based on the additional bonds test leverage limitations for the senior and junior liens, and the statutorily defined, limited nature of the borrowing program support a rating two notches above the Illinois IDR," he said.
In its rating report, Fitch noted there is "very high" debt service coverage on both the senior and junior bonds from the state share of pledged revenues. It also highlighted the legal leverage limitations on Build Illinois bonds.
Kim said the additional bonds tests for the two liens limit debt service to no more than 5% of the state's prior year sales tax receipts to issue senior lien bonds and 9.8% to issue junior obligation bonds. "This effectively requires 20x coverage to issue senior lien bonds and 10.2x coverage to issue junior obligation bonds," he said.
KBRA noted credit strengths such as a continuing appropriation requirement; historically strong and increasing pledged sales tax revenues; and ample debt service coverage. The debt service coverage for the senior bonds is 136.1x, and it's 46.4x for the senior and junior bonds combined.
Recently, "the state share of sales tax receipts has grown faster than sales tax bond debt service requirements, resulting in a trend of rising debt service coverage between 2018 and 2024," said Lina Santoro, a director in KBRA's public finance ratings group.
The rating agency, which does not rate the state's general obligation debt, said it considers the legal framework of the Build Illinois bonds program supportive of the current rating level. Likewise the state's broad, diverse economic base and the "extraordinary" MADS coverage of combined senior and junior obligations — over 40x for the past three fiscal years, KBRA said.
Santoro said the state has historically borrowed modestly against its sales tax receipts because "residual amounts comprise a large component of the state's operating budget."
She also noted that the pro forma calculation of maximum annual debt service for debt service on the junior and senior obligations, after the issuance of the junior Series 2025 bonds, is projected to be 33.4x — "well above the ABT test level of 10.2x, providing a very large buffer to manage potential volatility in the sales tax receipts," Santoro added.
S&P said in its rating report that despite the current high level of economic and fiscal uncertainty due to the Trump administration's actions, "extraordinarily high debt service coverage on both junior- and senior-lien [Build Illinois] debt provides considerable downside protection even under a slow growth outlook."
The authorizing legislation for the Build Illinois bonds program requires an annual appropriation for transfers from the Build Illinois Fund to the Build Illinois Bond Retirement and Interest Fund for debt service, S&P noted. It's an irrevocable and continuing appropriation; the state also covenants not to impair its process for collecting pledged taxes or to alter how it decides transfers to the BIBRI fund.
The rating agency said its stable outlook on these bonds primarily reflects its view of the state's stable GO credit. It rates Illinois GOs A-minus, one notch below the Build Illinois credit.
"We don't believe that cuts in federal funding would necessarily destabilize the state's credit profile, as the state could simply cut most services or programs in proportion to the reduction in federal funding," said Scott Nees, S&P Global U.S. public finance ratings director.
"Now, if Illinois were to elect to continue funding certain priorities following a federal aid reduction, we would want to understand how it planned to do so absent the federal funds — i.e., how it would sustainably incorporate these costs into the budget," he added. "This has yet to occur, though, so this will be one of the areas we're watching."
Nees added that Illinois' sales tax revenue performance hinges substantially on overall economic performance, which is tough to predict given the aforementioned uncertainty.
"Our baseline U.S. economic forecast for Q1 2025 still has the U.S. economy expanding by 2% overall in 2025, but our chief economist has indicated that tariffs or curbs on immigration could result in a significant downward revision to the forecast," he said. "All else equal, a slower economy will most likely lead to weaker sales tax performance in Illinois. Illinois has already seen tepid sales tax performance so far this year relative to FY2024, and we suspect could see even softer performance in the months ahead."
Illinois last sold Build Illinois bonds
According to the
A spokesman for the governor's office referred all questions to the official statement.
Moody's Ratings assigns an A3 rating with a positive outlook to the state's GO debt.
