Moody's Investors Service said it has downgraded the city of Wayne, Mich.'s issuer rating to B1 from Ba3 and general obligation limited tax rating to B2 from B1.
The outlook is negative. The city has $27.5 million of rated GOLT bonds.
The downgrade of the issuer rating to B1 reflects greater than expected draws on already narrow liquidity in the current fiscal 2017 and an increasingly stressed financial position due to an ongoing structural imbalance with few options to make timely expenditure cuts or revenue enhancements, Moody's said. The rating also reflects the city's modestly sized tax base with significant concentration in auto manufacturing, a weakened socioeconomic profile, very high leverage and high fixed costs.
The B2 GOLT rating is one notch lower than the city's issuer rating. The notching reflects greater pressure on the continued payment of limited tax bond debt service, relative to the hypothetical GOULT pledge of the issuer rating, given the lack of a dedicated bond levy and strong limitations on the city's ability to raise revenue, according to the rating agency.
The negative outlook reflects the expectation that the city's sizeable operating gap will continue to exert tremendous stress on liquidity.
Previous attempts to increase revenues and reduce expenditures were insufficient, and the city has limited options to address its structural shortfall.
Factors that Could Lead to an Upgrade
- Stabilization of the city's financial operations and reserves
Factors that Could Lead to a Downgrade
- Further narrowing of the city's liquidity
- Lack of progress on trimming operating expenses