Illinois Renegotiates Derivative Deals as Rating Approaches Junk
- Barclays, BofA, JPMorgan, Deutsche Bank lower rating triggers
- Under new terms, state must stay above junk to avoid payout
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Illinois renegotiated interest-rate derivative contracts with banks to avoid having to pay about $150 million of fees if its credit rating gets cut closer to junk.
The step comes after S&P Global Ratings and Moody’s Investors Service lowered Illinois to the second-lowest investment grade, below any other U.S. state. Without the agreement, another downgrade could have allowed Barclays Bank Plc, Bank of America Corp., JPMorgan Chase & Co. and Deutsche Bank AG to demand multi-million fees to break the $600 million worth of contracts, which the state entered into more than a decade ago to protect against rising interest bills on variable-rate bonds.