Fitch Ratings has downgraded the following Detroit, Michigan ratings, citing imminent default:
--Approximately $411 million unlimited tax general obligation (ULTGO) bonds to 'C' from 'CCC';
--Approximately $202.8 million limited tax general obligation (LTGO) bonds to 'C' from 'CC';
--Approximately $1.5 billion pension obligation certificates of participation (COPs) series 2005-A,
2006-A, and 2006-B issued through the Detroit Retirement Systems Funding Trust, Michigan to 'C' from 'CC'.
Fitch has placed the following Detroit, MI revenue bond ratings on Rating Watch Negative:
--The 'BBB+' rating on approximately $1.9 billion senior lien water revenue bonds;
--The 'BBB' rating on approximately $1.1 billion second lien water revenue bonds.
--The 'BBB+' rating on approximately $1.9 billion senior lien sewer revenue bonds;
--The 'BBB' rating on approximately $974 million second lien sewer revenue bonds.
SECURITY
ULTGO bonds are supported by the city's unlimited property tax pledge. LTGO bonds are a first budget obligation. Pension COPs are unconditional contractual obligations of the city, not subject to appropriation. If the city fails to make a COP debt service payment, the contract administrator may file a lawsuit against the city to enforce the obligation, and a court can compel the city to raise the payment through the levy of taxes without limit as to rate or amount pursuant to Michigan law.
Senior lien water revenue bonds are secured by a first lien on net revenues of the city's water system. Second lien water revenue bonds are secured by a second lien on net system revenues after payment of senior lien bonds.
Senior lien sewer revenue bonds are secured by a first lien on net revenues of the city's sewer system. Second lien bonds are secured by a second lien on net system revenues after payment of senior lien bonds.
KEY RATING DRIVERS
DOWNGRADE REFLECTS IMMINENT DEFAULT: The downgrade to 'C' on the city's ULTGO, LTGO and COPs reflects the Emergency Manager's (EM) Proposal for Creditors (proposal), released today, stating that the city will not make the debt service payment on the pension COPs due today. The proposal further calls for a distressed debt exchange for ULTGO and LTGO bonds; Fitch would consider such an exchange to be a default.
RATING WATCH REFLECTS UNCERTAINTY: The Rating Watch Negative on senior and subordinate water and sewer revenue bonds reflects heightened uncertainty around water and sewer fund debt given its inclusion in the EM's proposal.
