Moody's Investors Service said it has downgraded the city of Detroit's certificates of participation (COPs) rating to C from Ca.
It did not assign an outlook to the C rating. The rating action concludes a review for possible downgrade, commenced on October 8, 2014. The COPs were issued to help fund the city's pension obligations and are secured by the city's unconditional contractual obligation to pay debt service, which is not subject to annual appropriation. The city defaulted on its COPs on June 15, 2013, just prior to filing for bankruptcy on July 18, 2013. As of the bankruptcy petition date, the city had $1.45 billion of COPs outstanding.
This rating action follows the recent settlement announcements between the city and the two insurers of the COPs debt, FGIC and Syncora.
Reported terms of the FGIC settlement, along with the Syncora settlement terms laid out in the city's Seventh Amended Plan of Adjustment, support the expectation of a recovery rate falling well below the 35% to 65% recovery rate range that would be consistent with a Ca rating.
The settlement terms with Syncora have been approved by Detroit's City Council. The FGIC settlement terms have been presented to the bankruptcy court and will be presented to the city council for approval. The city remains under oversight pursuant to Public Act 436 and approval by city council is not necessary to finalize the settlement. If city council does not approve of the terms, the Emergency Financial Loan Assistance Board will make the ultimate decision of whether to approve the settlement terms. The bankruptcy court must also approve the settlement as part of the overall approval of the city's plan of adjustment.
