OREANDA-NEWS. Fitch Ratings has affirmed the 'AA+' rating on the following Build Illinois sales tax revenue bonds of the state of Illinois:

--$1.972 billion of outstanding State of Illinois Build Illinois senior lien bonds;
--$777 million of outstanding junior obligation bonds.

The Rating Outlook is Stable.

SECURITY

The senior bonds have a first and prior claim on the state share of the 6.25% unified sales tax and a first lien on revenues deposited into the Build Illinois Bond Retirement and Interest Fund (BIBRI). Debt service payments on the junior obligation bonds are subordinate to outstanding senior lien debt service; the senior lien is not closed.

KEY RATING DRIVERS

STRONG LEGAL PROVISIONS: Build Illinois bonds have a statutory first lien on the state's share of the sales tax and strong non-impairment language. These insulate the bonds from state operations and support a rating level that is higher than that of the state's general obligation (GO) bonds.

HIGH DEBT SERVICE COVERAGE: As senior lien debt issuance is limited to 5% of prior year sales tax revenues, debt service coverage by sales tax revenues has consistently been very high, even during the recent recession when sales tax revenues declined.

JUNIOR LIEN BONDS RATED ON PAR WITH SENIOR: No rating distinction is made between the senior and junior obligation bonds. The junior bonds benefit from the security provisions of the senior lien bonds, including the first lien on the state's share of the sales tax. The additional bonds test (ABT) is more liberal but still very strong at 10.2x maximum annual debt service (MADS) coverage.

ECONOMY A CREDIT STRENGTH BUT RECOVERY IS SLOW: The state benefits from a large, diverse economy centered on the Chicago metropolitan area, which is the nation's third largest and is a nationally important business and transportation center.

RATING SENSITIVITIES
The rating is sensitive to the performance of sales tax revenues and debt service coverage levels. Limits on additional debt issuance that require very high historical coverage provide significant cushion against revenue declines at the current rating level.

CREDIT PROFILE
LEGAL PROVISIONS SUPPORT RATING HIGHER THAN THE STATE GO
Build Illinois bonds are not general obligations of the state but instead are secured by a first priority pledge of the state portion of the sales tax as well as a lien on the moneys in the fund that receives monthly transfers of the sales tax receipts (BIBRI). The enabling legislation includes strong non-impairment language wherein the state pledges that it will not limit or alter the basis on which the sales taxes are collected and transferred to the BIBRI account. The statutory lien on revenues, strong debt service coverage, and the strong non-impairment language insulate the bonds from state operations and support a rating level that is higher than that of the state's GO bonds, (rated 'BBB+'/Stable Outlook).

JUNIOR OBLIGATION BONDS BENEFIT FROM SECURITY PROVISIONS
No rating distinction is made between the senior and junior obligation bonds, despite the lower position of the junior obligation bonds in the flow of funds, as the junior bonds benefit from the security provisions of the senior lien bonds, including the first lien on the state's share of the sales tax. The junior obligation bonds do not have a claim on the debt service reserve fund. Coverage of annual debt service and MADS requirements is very high for both the senior and junior obligation bonds. Additional security features include ABTs that require debt service be 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; effectively requiring 20x coverage to issue senior lien bonds and 10.2x coverage to issue junior obligation bonds.

HIGH DEBT SERVICE COVERAGE FROM PLEDGED REVENUES
Sales taxes are imposed at a unified state and local rate of 6.25%, with 80% of collections representing the state's share. The sales tax generated $8.5 billion in fiscal 2015, with pledged revenues providing 25x coverage of MADS on aggregate debt, including the junior obligations. Sales tax revenue performance has been strong since the end of the recession, demonstrating solid year-over-year growth in all years except 2013. Most recently, sales tax revenues grew 4.1% and 4.5% in fiscals 2014 and 2015, respectively. Current performance is somewhat softer, with just 0.6% year-over-year growth in sales tax revenues through January 2016, caused in part by lower gasoline prices. The state taxes gasoline sales as a percentage of per gallon price.

TEPID ECONOMIC GROWTH
The Illinois economy is centered on the Chicago metropolitan area, which is the nation's third largest and a nationally important business and transportation center. Illinois' economy has gradually shifted, similarly to the U.S. in general, away from manufacturing to professional and business services. The remaining manufacturing sector includes more resilient non-durables, and is less concentrated in the auto sector than are surrounding states.

Illinois' economic performance, while positive, has lagged that of the U.S. as a whole. Employment growth has been well below the national average through the recovery/expansion period and has weakened relative to the U.S. in recent months. Non-farm employment was flat in December 2015 versus a U.S. growth rate of 2%. Employment recovery, as of December 2015, is among the weakest of the states at just 97.4% of the pre-recession peak. Both GDP and personal income declined at a steeper rate in Illinois during the recession and have been increasing at a slower rate during the expansion. Wealth levels remain above average. Per capita income is 103% of the national average, seventeenth among the states.