Standard & Poor's Ratings Services said that it revised its outlook to stable from negative on Detroit's unlimited- and limited-tax general obligation (GO) bonds and pension obligation certificates. At the same time, Standard & Poor's affirmed its 'B' rating on the bonds.
The outlook revision follows the appointment of an emergency manager (EM) by the state.
"We view the appointment of an emergency manager as a positive step toward regaining structural balance and improving the city's overall financial condition," said Standard & Poor's credit analyst Jane Hudson Ridley.
The 'B' rating reflects our view of the following credit factors:
• The extent of the city's financial challenges, given a structural imbalance since 2003 and persistent cash flow pressures;
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• The magnitude of long-term obligations facing the city, including potential swap counterparty payments, pension and other postemployment benefit cost pressures;
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• Ongoing difficulty curing a structural deficit that arises primarily from economic-related revenue shortfalls exacerbated by a long-term population decrease that has diminished the city's revenue base; and
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• Severe economic stress with monthly periods of unemployment exceeding 20%, although the rate has come down over time.
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When we assigned the negative outlook to the rating in March 2012, it was prior to the enactment of a consent agreement (the Financial Stability Agreement or FSA) between the city and the state. Since that time, the city has made changes, but the pace has been slow, exacerbated by distractions within city government.
"The appointment of an EM allows the city to move forward in a more efficient manner, continuing to make the types of adjustments necessary to regain structural balance," added Ms. Ridley.
