CHICAGO -- As promised, Fitch Ratings Monday dropped Detroit’s rating to D from C a day ahead of the city’s expected default on its general obligation bond payments.
The D rating is Fitch’s lowest, and Detroit is the only city to carry the rating on its GO debt.
Detroit emergency manager Kevyn Orr has said publicly several times that the city will not make any payments on debt it considers unsecured, which includes the city’s GO debt. October 1 marks the city’s first scheduled payment on its GO bonds since Orr announced the plan in June. Detroit filed for Chapter 9 bankruptcy in July.
“Obviously this doesn’t come up often, but our criteria does allow us to lower ratings based on public declarations” before formal default, Fitch analyst Arlene Bohner said.
The move affects $411 million of unsecured unlimited-tax GO bonds and $203 million of limited-tax GO bonds rated by Fitch.
Detroit’s expected default Tuesday will make it the largest city to default on a full faith and credit pledge since the Great Depression. In June, Orr skipped a $39.7 million on pension certificates. Fitch already maintains a D rating on the certificate debt.
On Sept. 18, Fitch put out a report warning that it would downgrade the city to D if it defaults on the Oct. 1 payment. The ratings company also said if the bankruptcy court approves Detroit’s plan to treat unlimited-tax GOs as unsecured debt, it could have a broader impact on how the agency treats such debt, particularly in Michigan.
Moody’s Investors Service said its ratings of Caa3 on the city’ unlimited-tax GOs and Ca on the LTGOs and pension certificates already assume a default.
Standard & Poor’s has a C rating on the general obligation bonds with a negative outlook.