UPDATE 1-S&P keeps Detroit GO rating at 'D' after city's debt plan

Thu Feb 27, 2014 12:05pm EST

Feb 27 (Reuters) - The plan Detroit filed in federal court last week to restructure $18 billion of debt and emerge from bankruptcy will not change the city's 'D' general obligation credit rating, Standard & Poor's Ratings Services said on Thursday.

The rating agency also said the plan, which calls for some GO bondholders to take an 80 percent loss on their investment, will not change the way it views the U.S. municipal bond market as a whole, calling Detroit's dire fiscal situation "unique."

"Although actions to date may give us a clearer picture of how Michigan's current administration makes policy decisions, or how the state's emergency manager law may, or may not, support local units of government, they have not triggered any GO rating changes in the state, or across the U.S. to date," said S&P analyst Jane Hudson Ridley in a statement.

Detroit's state-appointed emergency manager filed for the biggest ever U.S. municipal bankruptcy in July. The city defaulted on $608 million of unlimited tax and limited GO debt in October, prompting S&P to drop its rating from C to D.

S&P said it will be focusing on how GO bonds are ultimately treated in Detroit's bankruptcy given that the city is proposing a much higher payout on pensions, which it also considers unsecured debt.

S&P added that the debt adjustment plan Detroit released last Friday suggests that the city's bonds backed by its slice of state revenue sharing will be paid in full. Those bonds, sold through the Michigan Finance Authority, have retained their investment-grade ratings of AA, AA-minus and A-plus.

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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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