CHICAGO — A week after pushing Wayne County, Mich. to junk territory, Standard & Poor's released a commentary saying it's too early to start talking about bankruptcy or a state takeover for the county, home to Detroit.
"In our view, to start treating the county as if it is about to file for bankruptcy is a bit premature, given the process required in Michigan to file," S&P analyst Jane Ridley wrote in the Feb. 19 comment. "As we recently saw in Detroit, bankruptcy is a significant issue, with serious potential repercussions for bondholders. We take very seriously any possibility of bankruptcy, but we don't want to rush to judgment before letting the process to take its course."
In the commentary, titled "Wayne Charter County, Michigan's Mounting Structural And Financial Pressures Might Affect Credit Quality, But Bankruptcy Fears Are Premature," Ridley outlines the steps necessary for a government to file for Chapter 9 in Michigan, and says the process makes "a rush to bankruptcy" difficult for the county. But S&P said it may change its view of the likelihood of bankruptcy if the state appoints a third party to take over the county in light of Detroit's speedy move from state takeover to filing for bankruptcy protection.
"While many consider it a positive step to bring in a third party who has powers to make changes, such as the Emergency Manager option, given Detroit's recent experience and very rapid move to bankruptcy, our view on the county's trajectory could well change with the appointment of an emergency manager," Ridley wrote.
S&P on Feb. 13 downgraded Wayne to BB-plus from BBB-minus, with a negative outlook. With the move, the county lost its final investment-grade rating. Moody's Investors Service on Feb. 9 dropped it three notches to junk, and Fitch Ratings already assigned a speculative rating to the credit.
The Moody's and S&P downgrades came after County Executive Warren Evans, who took office in January, warned that the county is on track to run out of cash by August 2016 and that bankruptcy or state takeover are on the table without major financial fixes.
