NEW YORK - Moody's Investors Service said it has downgraded the city of Detroit's general obligation unlimited tax (GOULT) and certificates of participation (COPs) ratings to B3 from B2 due to recent events that have highlighted risks associated with the city's illiquid cash position and lack of a clear political consensus to successfully implement the city's Financial Stability Agreement (FSA).

Concurrently, Moody's has downgraded the city's general obligation limited tax (GOLT) rating to Caa1 from B3. The GO, COPs and GOLT ratings remain on review for possible downgrade pending completion of the sale of the Michigan Finance Authority's local government loan program revenue bonds, Series 2012B (Second Lien) and Series 2012C (Third Lien), along with the release of the escrowed proceeds from a private placement loan with Bank of America Merrill Lynch (BAML)(long term rated Baa1/ratings under review for possible downgrade).

Moody's also downgraded the ratings for the Detroit water and sewage enterprise revenue debt to Baa2 (senior lien) and Baa3 (second lien) as the risk of a city bankruptcy filing has incrementally increased in light of persistent liquidity pressures at the city level and ongoing political instability.

This rating action also applies to the sewage disposal system revenue and revenue refunding senior lien bonds, Series 2012A.

Ratings for the Detroit water and sewage enterprise revenue bonds remain under review for possible downgrade pending the completion of the above referenced Michigan Finance Authority sale along with the release of the escrowed funds from the private placement with BAML.

Also a focus of the review is the continued uncertainty of how the water and sewage systems would be treated in the event of a bankruptcy filing by the city.

Additionally, the sewage system ratings remain under review for possible downgrade pending the successful completion of the planned Series 2012A sale and successful unwinding of the system's swap portfolio.

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