PROVIDENCE, R.I. -- Defaulting on the 38 Studios moral obligation bonds could cost the state more than it saves, the Rhode Island Public Expenditure Council says in a new report.
While defaulting eliminates an $89.2 million obligation, it would probably lead to a credit downgrade and increased borrowing costs that, according to one model, could add $90.6 million in interest expenses on appropriation and general obligation bonds over a 10-year period.
Borrowing costs could also rise for quasi-public state agencies such as the Rhode Island Airport Corporation and the Rhode Island Housing, as they issue debt that is partially backed or authorized by the state, the report says.
The report recommends that the state avoid defaulting and pay back bondholders.