(Adds S&P ratings, deals' insurance, structure, spot
Aug 26 Detroit's water and sewer revenue bond
credit ratings were raised ahead of a $1.8 billion debt sale
that is expected to hit the municipal market on Tuesday, but
Moody's Investors Service kept the debt in junk territory.
Standard & Poor's Ratings Services on Tuesday rated the
refinancing bonds investment-grade at BBB-plus and upgraded the
rating on unimpaired existing water and sewer bonds to BBB-plus
Moody's late on Monday had upgraded the city's senior lien
bonds to still-junk levels at Ba2 from B1 and second lien bonds
to Ba3 from B2. The credit ratings agency said it based the
upgrades on the fact that the city's recent tender offer, which
returned nearly $1.5 billion of the $5.2 billion outstanding
water and sewer debt for repurchase, removes the debt from
Detroit's ongoing bankruptcy proceedings.
"This transaction diminishes the risk of an economic loss to
water debt bondholders in the near term, though the system's
rating is constrained by its ongoing linkage to Detroit as it
remains a department of the city," Moody's said in a statement.
If the tender is completed through the issuance of the
revenue refinancing bonds, debt that was not tendered will
continue to be paid under current terms and rates.
In the absence of the tender, call protection would have
been eliminated or interest rates would be reduced on "impaired"
outstanding water and sewer bonds under the plan. Those bonds
make up about $2.2 billion of the existing $5.2 billion of debt.
But some of the tendered bonds are being purchased by the
city at below par levels, S&P said, and it downgraded those
bonds to CC from CCC.
"All ratings that are CC are considered to involve a
distressed exchange in which bondholders are receiving less than
the original promise," Scott Garrigan, an S&P credit analyst,
said in a statement.
He added that after the bond sales' closing date, expected
to be Sept. 4, the rating will drop to D for default and then to
Fitch Ratings late on Monday said it expects to rate the
senior lien bonds BBB-minus, the lowest investment-grade level,
and the second lien bonds BB-plus. Fitch had previously rated
the senior lien bonds and second lien bonds BB-plus and BB,
The refinanced bonds, issued through the Michigan Finance
Authority and priced by lead underwriter Citigroup, will raise
money to pay for the tendered bonds, and fund about $162 million
in new projects.
Most of the bonds will be insured by Assured Guaranty
Municipal Corp or National Public Finance Guarantee Corp,
lifting ratings to investment grade, according to the deals'
Sewage disposal system bonds are structured with term bonds
due in 2044 with premarketing yields as high as 5.22 percent and
serial bonds that go out as far as 2036 yielding 4.93 percent.
Water supply system bonds have serial maturities that extend to
2037 with a premarketing yield of 4.62 percent.
(Reporting by Karen Pierog; , editing by G Crosse, Dan Grebler)