Thursday's bankruptcy filing by the city of Detroit represents the next stage in the examination and prioritization of the city's sizable long-term liabilities, Fitch Ratings said.
The agency remains concerned that the chances for full and timely payment of unlimited tax general obligation bonds appear weak despite the city's adherence thus far to its pledge to levy and collect a voter-approved tax specifically for that purpose.
There has been little precedent for the classification of ULTGOs as general unsecured debt and the bankruptcy court's treatment of this issue will inform future credit analysis of ULTGO bonds. The next debt service payment date for ULTGOs and limited tax general obligations is October 1. Fitch will be watching closely the ongoing developments related to the bankruptcy and upcoming payments.
This action was not unexpected. Fitch said it signaled concern about Detroit's long-term prospects and kept the ratings on negative watch or outlook as the ratings declined steadily since 2005. On June 14, 2013, Fitch lowered both the LTGOs and ULTGOs to C from CC and CCC, respectively, stating that default is imminent or inevitable, when the emergency manager announced the intention to default on and/or execute a distressed debt exchange last month.
