Fitch: Defaulting on 38 Studios bonds would have negative impact, but no junk status


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PROVIDENCE, Rhode Island — Fitch Ratings says a failure to repay the bonds that financed the 38 Studios deal would negatively affect Rhode Island's bond rating, but not sink it to junk status.

The agency said Tuesday the debate during the last two legislative sessions over whether the state should honor the moral obligation bonds has created "headline risk." But Fitch said it doesn't believe the debate currently affects the state's commitment to pay.

The budget enacted for 2014-2015 includes $12.3 million for the next payment. 38 Studios got a $75 million state-backed loan, then went bankrupt.

An outside report predicted that default would bring junk bond status. Legislative leaders and the governor have insisted the state must pay the bonds or the rating will drop and make future borrowing significantly more expensive.

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