CHICAGO — Wayne County, Mich. got some breathing room Tuesday from Standard & Poor's as the ratings agency removed the county's junk rating from Creditwatch Negative in light of Wayne's new consent agreement with the state.
S&P kept its speculative-grade BB-plus rating on the county's limited-tax general obligation bonds, as well as its negative outlook.
Taking the rating off negative creditwatch lifts the threat of an immediate downgrade.
It's the latest positive ratings action tied to the county's move in August to enter into a consent agreement with the state to handle its financial emergency. Fitch Ratings on Aug. 24 removed the county speculative rating of B from its Ratings Watch Negative, also in recognition of the city's improved prospects under the consent decree. Before that, Moody's Investors Service, which rates the county at the speculative Ba3 level with a negative outlook, saying it viewed the consent agreement as a credit positive.
S&P placed the county, which includes Detroit, on Creditwatch in June after County Executive Warren Evans requested a state review of its finances, triggering a process that could lead to a complete state takeover. Gov. Rick Snyder declared the county was in a financial emergency on July 22, and the county and state in August opted to enter into a consent agreement. The decree leaves most control in local hands, while broadening the county's power over labor contracts.
"With the county board's approval and adoption of a consent agreement in August 2015, Wayne County's staff will maintain control over the county's day-to-day operations and also continue to direct the long-term issues addressed in the consent agreement; in our view, this autonomy is critical to the county's ability to make the meaningful changes necessary to improve its financial position," S&P said in a brief report published Tuesday.
The county is in the midst of a 30-day negotiation period with the unions, after which it can impose various conditions on labor contracts if agreement is not reached.
The agreement, which includes Evans' restructuring plan, aims to eliminate a $52 million structural deficit and tackle long-term retirement costs by December 2015. The schedule may be too ambitious, analysts said.
"The negative outlook reflects Standard & Poor's expectation that making the significant, meaningful adjustments necessary could take longer than anticipated, and absent these fundamental operating changes the county's financial position will continue to deteriorate," S&P said. "Without the county's clear, demonstrable progress to regain structural balance and reduce its sizable pension and OPEB burden, we could lower the rating," the report said, adding that deterioration in the county's liquidity position could also spark a downgrade.
