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.

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