Moody's Investors Service said it has downgraded the city of Detroit's general obligation unlimited tax rating to Caa3 from Caa2 and its general obligation limited tax (GOLT) and certificates of participation (COPs) ratings to Ca from Caa3.
Detroit's Water Supply and Sewage Disposal Systems' ratings were also downgraded, with senior lien ratings falling to B1 from Ba1, and second lien ratings falling to B2 from Ba2. All ratings remain under review for further possible downgrade.
Concurrently, Moody's placed the city's Aa3 rated distributable state aid general obligation unlimited tax and A1 and A3 rated distributable state aid general obligation limited tax ratings on review for downgrade.
The downgrade of the city's GOULT rating to Caa3 from Caa2, along with the downgrade of the GOLT and COPs ratings to Ca from Caa3, follows the Emergency Manager's (EM) announcement that debt service payments will be halted on each security, citing a lack of immediately available general fund resources.
The downgrade of the Water and Sewage Disposal Systems' senior lien ratings to B1 from Ba1 and second lien ratings to B2 from Ba2 reflect the secured status outlined in the EM's report, but the significant uncertainty that remains given the potential for a distressed exchange. The placement of the city's outstanding DSA bonds on review for downgrade is based on uncertainty with respect to the treatment of these securities under a negotiated settlement.
The city's GOULT, GOLT, COPs, water supply system revenue and sewage disposal system revenue ratings remain on review pending Moody's assessment of whether a negotiated settlement is likely amongst parties or if a bankruptcy filing is imminent and the potential impact on the various debt security classes.