Standard & Poor's Ratings Services has lowered its rating on Wayne Charter County, Mich.'s limited-tax general obligation (GO) bonds to 'BBB' from 'BBB+'. The outlook is stable. At the same time, Standard & Poor's assigned its 'SP-1' rating to the county's limited tax GO delinquent tax notes.

"The downgrade reflects ongoing financial deterioration caused primarily by a prolonged structural imbalance," said Standard & Poor's credit analyst Jane Ridley.

The rating on the notes is based on our assessment of the following credit factors:

• Good projected coverage when incorporating additional liquidity and other pledged revenues;
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• Strong history of collections; and
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• Limited-tax GO pledge.
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The 2012 real property taxes due to Wayne County, outstanding and uncollected as of May 15, 2013, and the county's limited-tax GO pledge secure the series 2013 notes. Pledged revenues securing the notes include $300.7 million of 2012 delinquent property taxes and fees estimated to be delinquent after May 15, 2013.

However, only $238 million of that amount is expected to be available during the amortization period of the notes. The notes are being issued as fixed rate with no put feature.

These notes are being issued as pari passu with any other future notes secured by 2012 delinquent taxes. Should additional notes be sold in variable-rate mode, it is Standard & Poor's understanding and expectation that future structures will not include a put unless there is a liquidity facility.

The 'BBB' rating on the county's series GO limited and unlimited bonds reflects our view of the following credit factors:

• Economic diversification beyond the city of Detroit and a relatively diverse tax base;
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• Demonstrated strides toward stabilizing financial operations through an agreement with the Third Circuit Court;
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• A good financial management profile that includes development and implementation of policies designed to improve operational efficiencies across the organization; and
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• A debt burden we consider moderate.
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Offsetting factors include our view of:

• A negative unreserved general fund balance that continues to grow and a significantly reduced cash position;
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• Significant challenges in the form of falling revenues, rising expenditures, pressure from expenditures outside county management's control, and a challenged economic climate;
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• Significant economic pressures given falling property values and the related implication for property tax revenues; and
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• Economic indicators we consider just adequate.
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The stable outlook reflects Standard & Poor's expectation that Wayne County will continue to work toward regaining structural balance and that its progress will be observable over the outlook's two-year time horizon. Should the county's financial condition deteriorate significantly, Standard & Poor's could lower the rating.

Given the challenges to date and the county's ongoing need to make changes with both long- and short-term impacts, we do not expect to raise the rating during the course of the outlook period.

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