CHICAGO — Fitch Ratings downgraded Wayne County, Mich. general obligation bonds five notches Tuesday, sinking them to junk-bond status, citing the county's rapidly deteriorating fiscal condition.
Fitch also warned of the potential for further negative action by placing the ratings on negative watch. That's due to the county's need this fall to borrow for cash flow as local governments in the state struggle with affordable market access following Detroit's July bankruptcy filing and attempts to treat its GOs as unsecured debt. Detroit is Wayne County's seat.
Fitch lowered the county's $196 million of limited tax GO bonds to BB-minus from BBB-plus in a five-notch downgrade that puts it three levels below investment grade. Another $58.2 million of building authority stadium refunding bonds from a 2012 issue were lowered to BB-minus from BBB-plus. They were sold by Detroit/Wayne County Stadium Authority and carry the county's limited tax GO pledge.
Another $210.6 million of building authority bonds issued by Wayne County Building Authority were lowered to BB-minus from BBB-plus and the county's implied unlimited tax GO rating fell five notches to BB from A-minus. Wayne County officials could not be reached immediately to comment.
"The downgrade stems from the county's considerably narrowed liquidity position, the deepening of the general fund accumulated deficit and Fitch's concern regarding the limited options for elimination of the negative position," analysts wrote.
Fitch said contrary to its previous expectation, the unrestricted accumulated deficit grew in fiscal 2012 and is expected to deepen again in fiscal 2013 despite significant cuts. Analysts remain concerned even deeper cuts planned for fiscal 2014 may fall short given other budgetary pressures.
The negative watch reflects worries over the county's market access as it needs to issue $100 million of tax anticipation notes in the fall to cover day-to-day cash flow. "Inability to access the market in an economically-feasible manner, given recent challenges, experienced by other Michigan issuers, could negatively affect liquidity and would likely result in a downgrade," Fitch wrote.
The county's limited tax GO bonds carry the county's GO ad valorem tax pledge, subject to applicable charter, statutory and constitutional limitations.
Stadium authority and building authority bonds are secured by lease payments from the county to the respective authority. The obligation to make the rental payments is not subject to appropriation, setoff or abatement for any cause, and they carry the county's limited tax GO pledge.
The county expects a $30 million general fund net operating deficit for fiscal 2013. The recommended fiscal 2014 budget beginning Oct. 1 projects balanced operations, including a $16 million appropriation for deficit reduction. The county's final audited results however have materially veered from original budget expectations in recent years, Fitch warned.
The county is considering requesting a new millage, which would generate up to $75 million annually, on the November ballot. Political support for the measure is uncertain, but if the millage passed, it could improve the county's credit profile, Fitch said.
Moody's Investors Service earlier this month dropped the county to Baa3, only one step above junk territory. The rating agency kept its outlook negative. Standard & Poor's lowered its rating on the county in May, dropping it to BBB from BBB-plus, citing the county's chronic structural imbalance. S&P has a stable outlook on the county.
