June 13 Moody's Investors Service on Thursday
pushed the credit ratings on nearly $8.4 billion of Detroit
bonds deeper into the junk category, citing heightened risks the
city could file for bankruptcy, undergo a major debt
restructuring or do a combination of both.
The action came a day after Standard & Poor's Ratings
Services also downgraded the city's rating and a day before
Detroit's emergency manager was set to lay out a restructuring
plan for creditors.
Kevyn Orr, the bankruptcy attorney Michigan officials tapped
in March to run the city as emergency manager, has summoned
public labor unions, bondholders, bond insurers and others to a
presentation on Friday of "a comprehensive restructuring plan
that will require discussion with the various creditor groups of
the city," according to a meeting notice.
Orr has previously outlined options for dealing with the
city's outstanding bonds that call for rescheduling or
permanently reducing principal payments, cutting interest rates
on the debt, or issuing new debt to provide cash recoveries to
creditors. He said on Monday at his first meeting with the
public there is a 50/50 chance Detroit may file what would be
the biggest-ever Chapter 9 municipal bankruptcy.
"Should default or bankruptcy occur, the recovery levels for
bondholders could potentially be quite low based on recent
municipal recovery rates for other distressed local
governments," Moody's said in a statement.
The credit rating agency downgraded Detroit's unlimited tax
general obligation bonds to Caa2, limited tax GO bonds to Caa3,
pension certificates of participation to Caa3, water and sewage
senior-lien revenue bonds to Ba1 and second-lien bonds to Ba2.
All the ratings were placed on review for potential further
"The review for downgrade for all securities will focus on
the (emergency manager's) restructuring plan with respect to
both bondholder repayment and potential treatment of the water
and sewer system assets," said Moody's.
S&P on Wednesday cut its rating on the city's GO debt four
notches to CCC-minus with a negative outlook from B.
On Thursday, it revised the rating outlook on Detroit's
senior and second-lien sewage revenue bonds to negative from
stable due to concerns over debt service coverage levels.