The State of Illinois’ fiscal problems are well known. The State receives widespread media coverage from having the lowest bond rating of any state in the country. Does this imply that all bonds issued by local governments within Illinois are poor credits? Not necessarily so, in our view. Illinois is made up of thousands of local governments with varying economic and financial characteristics. Thorough credit analysis helps uncover solid quality bonds within the diverse universe of municipal credits. Oftentimes, these issues offer attractive yields relative to the actual credit risk.
This paper focuses on the idea that applying blanket statements of credit risk across Illinois can lead to overlooked investment opportunities. We discuss Bernardi’s Three Pillars approach to municipal bond credit research by comparing the creditworthiness of one Illinois local government bond issuer to a similar credit issued in another state.