CHICAGO — Detroit is treating its Downtown Development Authority's bonds as special revenue bonds that are protected from the city's bankruptcy, Fitch Ratings noted in a comment released March 3.
The DDA itself, which finances economic development projects across the city, is expected to be impaired, however. The city owes the DDA $33.6 million from a 1994 loan, according to Fitch. The DDA is expected to take an 80% haircut on the loan. But the authority has already written the loan off and did not expect to see any recovery, a "prudent" move, Fitch said.
The treatment of the bonds and the loan are outlined in the city's recent plan of adjustment filed with the bankruptcy court Feb. 21.
The plan "reinforces Fitch's perspective that Downtown Development Authority bondholders are adequately insulated from Detroit's bankruptcy filing," analysts said. "Consistent with [Detroit emergency manager Kevyn Orr's] proposal to creditors, the POA does not include the DDA debt, and respects the definition of special revenues under Chapter 9 of the U.S. Bankruptcy Code."
Fitch assigns speculative grade ratings of BB-plus to the DDA's senior debt and BB to its subordinate debt.
The DDA is set to be the financing arm of a controversial $650 million deal to build a new hockey stadium on largely vacant land near downtown Detroit.