Dec 13 A recent ruling by a U.S. Bankruptcy
Court judge that cleared the way for Detroit to borrow money for
its broken public lighting system is bad for the city's
bondholders, Moody's Investors Service said in a report released
Judge Steven Rhodes, who is overseeing Detroit's historic
bankruptcy case, gave the city the go-ahead on Dec. 6 for a
financing plan that relies on $12.5 million in annual utility
tax revenue and that begins with $60 million of short-term
About 40 percent of the city's street lights do not work.
"The ruling is negative for Detroit's existing creditors as
the proposed issuance increases the probability that future
operating revenues will be diverted to new creditors,
diminishing resources available to pay existing debt holders,"
the credit rating agency said.
It said the loss of utility tax revenue, which normally
flows through Detroit's general fund, means that fund "may have
fewer resources with which to pay creditors."
Because Rhodes' ruling found the agreements associated with
the financing plan were the result of good-faith negotiations
between the city, the Public Lighting Authority and the Michigan
Finance Authority, a fight by bondholders over the utility tax
revenue is not likely to be successful, Moody's said.
Kevyn Orr, Detroit's state-appointed emergency manager, is
trying to improve services in the cash-strapped city.