(Adds S&P rating, Fitch rationale for BBB-plus rating, bond sale details)
June 18 (Reuters) - Fitch Ratings on Wednesday rated $185.7 million of revenue bonds for Detroit’s new public lighting authority BBB-plus with a stable outlook.
The rating was a notch lower than the A-minus rating Standard and Poor’s Ratings Services assigned to the bonds on June 11. The bonds are secured by a first lien on Detroit’s 5 percent tax on electric, gas and local telephone utility services.
While Fitch has rated most of Detroit’s outstanding debt below investment grade or D in the case of defaults, the new bonds were given an investment grade rating, despite the city’s ongoing bankruptcy case.
“The BBB-plus rating reflects Fitch’s belief that the pledged revenues required for debt service belong to the (public lighting authority) and are therefore not at risk of being considered property of the city of Detroit. The bankruptcy court overseeing the city’s current Chapter 9 proceeding issued a ruling supporting this position,” the credit rating agency said in a statement.
The bonds, which will be issued through the Michigan Finance Authority, are expected to be priced by lead underwriter Citigroup next week.
Some of the proceeds from the deal will be used to take out $60 million of floating rate bonds the city privately placed with Citibank in December to jump start improvements to the city’s ailing public lighting infrastructure.
A federal judge has set an Aug. 14 start date for a hearing to determine if Detroit’s plan to adjust $18 billion of debt and exit the biggest municipal bankruptcy in U.S. history is fair and feasible. (Reporting by Karen Pierog. Editing by Andre Grenon)