Fitch Downgrades Detroit, MI COPs & ULTGO's to 'C'; Water & Sewer Rev Bnds on Rating Watch Negative

Business Wire

NEW YORK--(BUSINESS WIRE)--

Fitch Ratings has downgraded the following Detroit, Michigan ratings, citing imminent default:

--Approximately $411 million unlimited tax general obligation (ULTGO) bonds to 'C' from 'CCC';

--Approximately $202.8 million limited tax general obligation (LTGO) bonds to 'C' from 'CC';

--Approximately $1.5 billion pension obligation certificates of participation (COPs) series 2005-A, 2006-A, and 2006-B issued through the Detroit Retirement Systems Funding Trust, Michigan to 'C' from 'CC'.

Fitch has placed the following Detroit, MI revenue bond ratings on Rating Watch Negative:

--The 'BBB+' rating on approximately $1.9 billion senior lien water revenue bonds;

--The 'BBB' rating on approximately $1.1 billion second lien water revenue bonds;

--The 'BBB+' rating on approximately $1.9 billion senior lien sewer revenue bonds;

--The 'BBB' rating on approximately $974 million second lien sewer revenue bonds.

SECURITY

ULTGO bonds are supported by the city's unlimited property tax pledge. LTGO bonds are a first budget obligation. Pension COPs are unconditional contractual obligations of the city, not subject to appropriation. If the city fails to make a COP debt service payment, the contract administrator may file a lawsuit against the city to enforce the obligation, and a court can compel the city to raise the payment through the levy of taxes without limit as to rate or amount pursuant to Michigan law.

Senior lien water revenue bonds are secured by a first lien on net revenues of the city's water system. Second lien water revenue bonds are secured by a second lien on net system revenues after payment of senior lien bonds.

Senior lien sewer revenue bonds are secured by a first lien on net revenues of the city's sewer system. Second lien bonds are secured by a second lien on net system revenues after payment of senior lien bonds.

KEY RATING DRIVERS

DOWNGRADE REFLECTS IMMINENT DEFAULT: The downgrade to 'C' on the city's ULTGO, LTGO and COPs reflects the Emergency Manager's (EM) Proposal for Creditors (proposal), released today, stating that the city will not make the debt service payment on the pension COPs due today. The proposal further calls for a distressed debt exchange for ULTGO and LTGO bonds; Fitch would consider such an exchange to be a default.

RATING WATCH REFLECTS UNCERTAINTY: The Rating Watch Negative on senior and subordinate water and sewer revenue bonds reflects heightened uncertainty around water and sewer fund debt given its inclusion in the EM's proposal.

RATING SENSITIVITIES

ULTGO; LTGO AND COPS: The rating will be downgraded to 'D' upon payment default or upon the execution of a distressed debt exchange that does not result in full and timely payment according to the original terms promised.

REVENUE BONDS: Rating action will follow further clarification from the city and/or EM regarding their intentions for senior and subordinate water and sewer revenue bond debt service payments.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Revenue-Supported Rating Criteria

U.S. Water and Sewer Revenue Bond Rating Criteria

2013 Water and Sewer Medians

2013 Outlook: Water and Sewer Sector

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709499

U.S. Water and Sewer Revenue Bond Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684901

2013 Water and Sewer Medians

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695756

2013 Outlook: Water and Sewer Sector

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695755

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=793720

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contact:
Fitch Ratings
Primary Analyst (ULGTO, LTGO, COPs)
Arlene Bohner, +1-212-908-0554
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Primary Analyst (Water and Sewer Revenue Bonds)
Adrienne M. Booker, +1-312-368-5471
Senior Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Amy Laskey, +1-212-908-0568
Managing Director
or
Committee Chairperson
Jessalynn Moro, +1-212-908-0608
Managing Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com

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