Fitch Ratings last week downgraded to BB-plus from BBB-minus its rating on junior-lien tax-increment financing bonds issued by the Detroit Downtown Development Authority.
The drop to a below-investment-grade level is due to declining debt service coverage, analysts said.
At the same time, Fitch affirmed the BBB-minus on senior-lien TIF bonds issued by the authority.
The outlook on all the debt is negative.
“Although the bulk of the district’s debt has a senior lien on tax-increment revenue, Fitch believes the difference in coverage between the senior and subordinate liens now merits a rating distinction,” wrote analyst Amy Laskey.
Pledged revenue backing the bonds has dropped for three straight years, and Fitch projects that combined coverage on all the debt will drop to 1.05 times from 1.15 times.
Further pressure could come from a recent settlement of a tax appeal by General Motors. The deal has reduced the property’s value and GM’s payments over the past three years. The settlement could reduce the authority’s 2013 pledged revenue by at least $1.6 million, Fitch said.
The TIF district includes GM’s headquarters at the Renaissance Center, one of the city’s three casinos, stadiums for the Detroit Lions and Tigers, and the waterfront.
