CHICAGO — Fitch Ratings confirmed Wednesday that Detroit made its Oct. 1 debt service payments on water and sewer bonds, and defaulted on general obligation debt the city believes is unsecured.
Both the water and sewer payments and GO default were expected. Detroit emergency manager Kevyn Orr announced in June he would stop making payments on debt he considers unsecured, like GO debt, and continue to make payments on debt he considers secured, like revenue bonds.
Fitch said the Oct. 1 water and sewer payments were for outstanding state revolving fund loans, which are secured by a net revenue pledge of the water and sewer systems.
The payments were made on Sept. 24, according to U.S. Bank, NA, the bond trustee.
"The city's timely repayment of the SRF loans, which were made as expected, reiterates Fitch's position that the debt of the department's water and sewer systems constitutes special revenue obligations under the city's Chapter 9 bankruptcy proceedings," analyst Adrienne Booker wrote in a news release.
On Monday, Fitch pushed the city's GO rating to D ahead of the general obligation default. The SRF loans are not rated by Fitch. The ratings firm rates the city's senior and junior lien water and sewer revenue bonds BBB-plus and BBB, respectively, and has the debt on negative watch.
Fitch is the only major ratings company to keep that debt at investment-grade levels. Standard & Poor's and Moody's Investors Service have dropped it to junk territory.
The city has $5.9 billion of water and sewer debt, including the SRF loans.
On Wednesday, Standard & Poor's lowered its long-term and underlying ratings to D from C on Detroit's limited- and unlimited-tax general obligation bonds.
"The downgrade reflects the nonpayment of debt service to the paying agent for the scheduled principal and interest payment date of Oct. 1," credit analyst Jane Hudson Ridley said in a statement.
