CHICAGO — Moody’s Investors Service has assigned a junk-level issuer rating of B1 with a negative outlook to the long-struggling Detroit Public Schools.
Moody’s previously rated only one piece of the district’s outstanding debt, which also carries below-investment grade ratings.
The B1 rating and negative outlook reflect the serious challenges facing DPS, analysts said.
Problems include chronic operating deficits, limited ability to raise operating revenue, falling enrollment — key to determining state aid levels — and a balance sheet weighed down by the need to pay off deficit elimination bonds, Moody’s analyst Elizabeth Foos said in a report released Monday.
“We expect internal and external forces to continue to weigh very heavily on the district’s capacity to restore structural balance,” Foos warned.
DPS has been under state-controlled emergency financial management since early 2009, which Moody’s considers a credit strength as it lends management stability. Thanks to a new Michigan law, the district’s emergency manager has greatly expanded powers over both academic and fiscal affairs — powers that make it less likely that the district would ask the state for permission to file for Chapter 9 bankruptcy, officials said.
Both the original emergency manager, Robert Bobb, and the new manager, Roy Roberts, have made substantial changes that have lead to some progress, Foos said. Among them are the closure of at least 20 schools and the restructuring of 40 more through a newly created state authority that will run Detroit’s and the state’s worst schools.
DPS has a high debt burden and slow amortization, with only 42% of its bonds maturing in 10 years.
Last month the district announced that it plans to come to market later this year with a $200 million deficit borrowing to erase two-thirds of the red ink in its fiscal 2012 budget. The deficit bond issue is part of Roberts’ fiscal 2012 budget.
