You don't understand the municipal bond market and how it works.
Quote:
Illinois is among many states that need to close budget gaps due to pensions and other entitlements. Its financial problems will only get worse if its bonds are downgraded to junk status, because then Illinois is likely to have to pay even higher interest rates on all of its debt.
Analysts at all of the Big Three ratings agencies have attributed much of the state’s credit woes to partisan gridlock, saying Illinois has significant economic strengths, the Journal noted.
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Illinois' Munis Get Closer to Junk - Barron's
The Definitive Resource for Illinois Municipal Bonds
The Definitive Resource for New York Municipal Bonds
The Definitive Resource for Massachusetts Municipal Bonds
Municipal Bonds are repaid by state taxes.
The borrower (the state) pays the coupon rate investor discount or pay a premium to yield.
Actually, the Muni Bonds that are downgraded may be a good high-yield tax free investment if the state of Illinois does not declare Section 9 Bankruptcy. I doubt Illinois will ever bankrupt. But it sure makes a good scare headline.