CHICAGO — Fitch Ratings Friday lifted its negative rating watch on Detroit's $1.5 billion of pension certificates of participation after the city made a scheduled $34.2 million debt service payment that was threatened by fiscal turmoil earlier this week.

It's a small piece of good ratings news for the Motor City after a week of dual downgrades and a crippling dispute with the state that pushed it to the brink of insolvency and revealed its skeletal cash-flow margins.

Top Detroit officials earlier this week warned the city would miss a Friday debt-service payment on the COPs — as well as payroll, starting this week — if the state followed through with its threat to withhold all revenue aid through December, unless Detroit's top lawyer dropped a lawsuit challenging the consent decree signed in April between Michigan and the city. Such an action would block a badly needed bond financing set for this month.

The dispute was resolved Wednesday when an Ingham Circuit Court judge ruled the suit invalid. But the city was still hit with a pair of downgrades from Fitch and Moody's Investors Service, pushing the its debt further into junk-bond territory.

Fitch downgraded the pension COPs to CC from B with rating watch negative. It also dropped $511 million of unlimited-tax general obligation bonds to CCC from B and $453 million of limited-tax GOs to CC from B-minus.

The agency removed the negative watch Friday morning, saying the judge's ruling lifted the immediate spectre of default but that significant problems still loom.

"This dismissal removes the immediate risk that a Friday debt service payment on the city's pension COPs might not be made," Fitch analyst Amy Laskey said in the report announcing the outlook change. "While the immediate threat of default has been lifted, Fitch believes that a number of other serious risks remain."

Moody's lowered the pension COPs and its unlimited-tax GO debt to B3 from B2 and its limited-tax GO bonds to Caa1 from B3. It also dropped the city's sewer and water senior- and second-lien bonds to Baa2 and Baa3, respectively, from Baa1 and Baa2.

Standard & Poor's put out a brief report Wednesday saying its B rating on the city's unlimited- and limited-tax GO debt and the pension COPs remained unchanged. The outlook on all the debt is negative.

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