Detroit's junk rating reaches post-bankruptcy high
Detroit’s issuer rating broke into territory it hasn’t seen since 2012 after the city's financial strides earned it a one-notch upgrade from Moody’s Investor Service on Tuesday.
The rating agency upgraded Detroit Ba3 from B1. The outlook, previously positive, is stable at the new, higher rating. Moody’s upgraded Detroit to B1 in October.
“The upgrade reflects further improvement in the city's financial reserves, which has facilitated implementation of a pension funding strategy that will lessen the budgetary impact of a future spike in required contributions,” Moody’s wrote. “The upgrade also considers ongoing economic recovery that is starting to show real dividends to tax collections.”
The stable outlook incorporates the city's high leverage, weak socioeconomic profile and the volatile nature of local taxes.
“A second rating upgrade in just seven months from Moody’s shows that we have created the financial management infrastructure necessary to continue to meet our obligations and enhance our fiscal position,” said John Hill, the city’s chief financial officer. “Working with the Mayor and City Council, our team has made a variety of improvements to financial management practices and our financial planning and budgeting practices are strong, as reaffirmed by Moody’s in their report.”
The state relinquished control of the city’s finances on April 30, three years after its Chapter 9 exit in December 2014. The city now has the power to enter into contracts and enact city budgets without seeking state approval first.
“Underperformance of pension assets and revenue volatility remain notable budgetary risks, but the city has amassed a large reserve cushion and adopted conservative budgetary assumptions that provide breathing room to respond to adverse developments,” Moody’s wrote.