Standard & Poor's Ratings Services has lowered its rating on Detroit, Mich.'s limited- and unlimited-tax general obligation (GO) debt and its pension obligation certificates (POCs) to 'CC' from 'CCC-'. The outlook is negative.
"The downgrade reflects the city's announcement today that it intends to halt debt service payments on its POCs," said Standard & Poor's credit analyst Jane Hudson Ridley.
The POCs have a debt service payment due June 15. Standard & Poor's rates an issue 'CC' when we expect default to be a virtual certainty, regardless of the time to default.
Today's report that the city's Emergency Manager gave to creditors divides Detroit's GO debt into "secured" and "unsecured" categories. The secured debt consists of bonds that are backed by both the city's GO and a state aid intercept pledge. The unsecured debt consists of all the other GO debt Detroit has outstanding. The report indicates the city will also cease payments on the remaining series of unsecured debt.
The negative outlook reflects our expectation that given the Emergency Manager's statements regarding debt restructuring, actions taken to date, and the existing potential for filing for Chapter 9 bankruptcy, we could lower the rating in the one-year time horizon of the outlook.
