CHICAGO – Allen Park, Mich.'s financial ills have eased enough to garner a five notch upgrade, moving it two notches from winning back investment grade status.
S&P Global Ratings raised the underlying rating on the city's general obligation debt to BB from CCC-plus Thursday and said it was no longer making a rating distinction between its limited-tax and unlimited-tax GOs. The outlook remains positive for the city, which exited state oversight earlier this year.
"The upgrade reflects our opinion that we no longer believe the city's limited-tax GO debt is at possible risk of default based on city's recent successful ability to remarket a material portion of its debt as well as building and maintaining very strong available reserves," S&P analyst Errol Arne wrote.
"Our positive outlook is based on our opinion that there is a one-in-three chance that we could raise our rating on the city within the next year due to our expectation that it will sustain its very strong budgetary flexibility and strong budgetary performance under its own authority without oversight or financial assistance from any state appointed entity,"
Michigan Treasurer Nick Khouri announced earlier this year the city's full release from receivership following improvements in its financial situation after nearly four years of state oversight.
Allen Park in 2012 requested a preliminary review of the city's finances as it faced a budget deficit, falling property values and the financial consequences of a failed movie studio development project. An emergency manager was put in place from March 2013 to September 2014.
The Receivership Transition Advisory Board was appointed in September 2014 when the financial emergency was resolved to oversee the city's transition back to local control.
The city improved its general fund balance and successfully passed a 10-year public safety millage and a 10-year road millage working with the advisory board. The city has also made all required contributions into the pension and retiree healthcare systems, including an additional $500,000 annual payment toward other post-employment benefit liabilities.
Allen Park completed a successful tendering of 62% of the outstanding bonds used to fund a failed movie studio project for a savings of $1.1 million in 2015. An additional remarketing of the remaining amount was finalized in 2016, saving the city another $900,000. The bonds were issued through the Michigan Finance Authority.
The bonds were initially sold in 2009 and 2010 to finance the film studio at a time when the state had had country's most generous film tax-credit program.
Plans for the eight-stage studio soon fizzled after the state government reined in the credits. With no one leasing the vast facility, the city was forced to dip repeatedly into its general fund to cover the $2.6 million annual debt service on the project. In November 2014, the Securities and Exchange Commission charged the city and two former leaders with fraud related to the debt, taking the rare move of charging the public officials as "control persons."