Rhode Island on Negative Watch by S&P on 38 Studios Default Risk

Rhode Island’s credit rating may be downgraded, Standard & Poor’s said, reflecting lawmakers’ debate about repaying debt that lured former Red Sox pitcher Curt Schilling’s failed video-game company.

S&P also cut the rating on bonds tied to 38 Studios LLC, by three levels to BBB, or two steps above junk. The securities were issued in 2010 by the Rhode Island Economic Development Corp., and the video-game maker filed for bankruptcy two years later. The state’s general-obligation rating is AA, third-highest.

The move comes three days after a state-commissioned report found that skipping payments on the moral-obligation bonds would cost Rhode Island its investment-grade rank. Interest costs on state debt would rise at least $36 million, and by as much as $362 million over the life of the bonds, Minneapolis-based SJ Advisors LLC said in the study.

“If Rhode Island were to fail to support any of its debt, we would likely take negative rating action, lowering G.O., appropriation, and moral obligation debt by multiple notches,” S&P said in today’s report.

To contact the reporter on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Mark Tannenbaum

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.