CHICAGO -- Fitch Ratings, the only major ratings company to keep Detroit water and sewer bonds at investment grade levels, said it is monitoring the debt as the city continues its high-profile restructuring.

Fitch maintains a BBB-plus rating on the senior-lien debt and BBB rating on the junior-lien bonds, one notch above junk. The ratings firm downgraded the debt in April.

Fitch has the bonds on credit watch negative in light of the uncertainty surrounding the city, but added that they have “substantial protection” in the event of a Chapter 9 filing.

Detroit emergency manager Kevyn Orr has proposed a debt restructuring that is likely to feature some kind of impairment. But Fitch said there’s no reason for water and sewer bondholders to accept an adjustment in terms given the strong legal protections of the bonds.

Orr cannot restructure the debt without bondholder consent, and it’s uncertain whether the bond insurers who wrap most of the bonds could legally agree to the restructuring on bondholders’ behalf, analysts said.

“The bond insurers’ consent to any exchange is subject to legal uncertainty, and their economic motivation to consent seems absent,” Fitch said.

“The negative watch on the water and sewer bonds reflects Fitch’s concerns regarding these potential event risks arising out of the EM’s proposal,” analysts said. “However, Fitch believes the bonds have a strong legal standing, both in and outside of any potential bankruptcy filing by the city.”

The city has about $5.9 billion of water and sewer bonds.

Standard & Poor’s recently dropped the debt as much as nine notches, from the highest A-plus rating on the senior-lien debt to BB-minus for all the debt. It’s keeping the bonds on “developing watch.”

Moody’s Investors Service rates the debt B1 for the senior lien and B2 for the second lien. Moody’s also has the debt on review for another possible downgrade.

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