Wayne County, Mich., executive Warren Evans has formally asked for state intervention as it works to solve its fiscal problems.

CHICAGO - Standard & Poor's put Wayne County's speculative grade rating on CreditWatch with negative implications Wednesday following its request for state intervention.

Standard & Poor's rates the county's limited-tax general obligation bonds BB-plus. Michigan's most populous county, which includes Detroit, has junk ratings from the three biggest ratings agencies.

"The CreditWatch placement reflects our expectation that with the onset of actions under Michigan Act 436, the county could lose some of the autonomy currently held by the CEO and his staff," said Standard & Poor's analyst Jane Ridley.

County Executive Warren Evans asked the state on June 17 to declare the county to be in a financial emergency. Evans wants to enter into a consent agreement with the state to boost the county's powers to deal with labor contracts and other issues pressuring the county's bottom line. State officials quickly said bankruptcy is not being considered and said the step should be viewed positively as a means to aid the county in resolving its fiscal problems.

Standard & Poor's said noted that under the law if the request is approved by the state for a financial review, the Wayne County board could choose one of four possible outcomes: a consent agreement; appointment of an emergency manager; a neutral evaluation; or it could pursue a Chapter 9 bankruptcy filing.

"In our view, the county's request for financial review does not signal the start of filing for bankruptcy, but rather a step in its stated goal of using all possible tools to regain structural balance," Standard & Poor's said. "However, given the uncertainty associated with these four options -- as well as the potential for a prolonged time frame to make additional meaningful structural changes while this process is underway--we have placed the rating on CreditWatch."

Standard & Poor's said the action reflects concerns that the county's autonomy in its restructuring could be diminished if an emergency manager is ultimately named. "In our view, this could mean that making the significant, meaningful adjustments necessary could be delayed or adjusted, which would have an impact on the county's long-term financial health," Standard & Poor's said.

Should the county retain control over its restructuring--such as via a consent agreement—the rating agency said it could remove the rating from CreditWatch and assign a negative outlook, reflecting the long-term budget pressures the county is facing.

The rating agency views the appointment of an emergency manager as more risky due to the loss of autonomy. That could drive a downgrade.

"Notwithstanding the uncertainty of the county's near-term management control, without the county's clear, demonstrable progress in the next year to regain structural balance and reduce its sizable pension burden, we could lower the rating," analysts warned. "In addition, should Wayne County's liquidity position deteriorate significantly, we could lower the rating."

Moody's Investors Service on June 22 affirmed its Ba3 rating and negative outlook on $336 million of GOLT debt. The county has about $654 million of limited-tax general obligation bonds. An additional $144 million of short-term GOLT delinquent tax anticipation notes are outstanding, with a $186.9 million sale planned for as soon as Thursday.



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