Fitch Ratings downgraded more than $4 billion of Detroit Water and Sewerage Department debt three notches to junk bond status Friday afternoon.
The ratings agency cited weak financial performance and uncertainty stemming from Detroit's ongoing Chapter 9 bankruptcy.
Fitch downgraded underlying ratings on $1.1 billion of senior lien water revenue bonds to BB-plus from BBB-plus; $565 million of second lien water revenue bonds to BB from BBB; $1.6 billion of senior lien sewer revenue bonds to BB-plus from BBB-plus; and $788 million second lien sewer revenue bonds to BB from BBB.
"The system continues to exhibit weak financial performance," Fitch analysts wrote in a news release.
"Fitch's concerns about delinquencies are further exacerbated by the city's status as a bankrupt entity," they wrote, adding that uncertainty remains around the city's attempt to impair water and sewer system bondholders through the bankruptcy process, including removal of the call provision and subordination of bondholder security interest, combined with threatened reduction in interest coupon.
Standard & Poor's and Moody's Investors Service both sent Detroit water and sewer debt underlying ratings to junk in July before the city's bankruptcy filing.