March 15 Standard & Poor's Ratings Services on
Friday gave a thumbs-up to Michigan's takeover of Detroit's
finances, revising the city's credit rating outlook to stable
"The appointment of an (emergency manager) allows the city
to move forward in a more efficient manner, continuing to make
the types of adjustments necessary to regain structural
balance," S&P credit analyst Jane Hudson Ridley said in a
Michigan officials on Thursday tapped Kevyn Orr, a
bankruptcy attorney at law firm Jones Day, to run the state's
biggest city, which has been plagued by budget deficits, a high
debt load and an outdated and costly government structure.
Despite the brighter outlook, S&P kept its rating of
Detroit's general obligation debt deep in junk territory at B,
citing budget deficits since 2003, persistent cash-flow problems
and a slew of long-term liabilities, including pension and
retiree health-care costs and potential payments on interest
The rating agency also pointed to Detroit's steep population
decline that has depressed its revenue collections and monthly
unemployment rates that have topped 20 percent.
"We are pleased to hear that the steps being taken to work
with Detroit and return the city to firm financial footing are
being recognized," said Terry Stanton, spokesman for Michigan
Treasurer Andy Dillon.
There was no immediate reaction to the outlook change from
Detroit Mayor Dave Bing.
Fitch Ratings, which gives Detroit debt ratings of CCC and
below with a negative outlook, said on Friday that a high level
of uncertainty remains for Detroit's bondholders despite Orr's
While the appointment of an emergency financial manager
would generally be considered as a positive development, "Orr
has been reported in the press to have made statements
indicating he will be looking for savings from current and
retired employees as well as bondholders," Fitch said in a
statement on Friday.
The new emergency law, which will be implemented at the end
of March, requires a plan with "full and timely debt repayment,"
Fitch said. The Wall Street rating agency also added that a
municipal bankruptcy remains a possibility. The emergency
manager has the power to recommend a bankruptcy filing.
Moody's Investors Service, which also rates Detroit deeper
into junk than S&P, said last week that while an emergency
manager could alleviate political and operational challenges,
the appointment opens a path for a bankruptcy filing by the city
that could mean delayed or reduced payments to bondholders.
Orr, who worked on the restructuring of Chrysler and who
will officially begin his job on March 25, could eventually
recommend a Chapter 9 municipal bankruptcy filing for Detroit.
If he were to do so, something that would require approval from
Snyder, Detroit would rank as the biggest municipal bankruptcy
ever in the United States.
Both Orr and Snyder have hinted that concessions may be
sought from owners of the city's approximately $8.5 billion of
Orr's appointment was another termination trigger for
interest rate swap agreements that Detroit entered into in
conjunction with debt sold for its employee pensions in 2006.
A termination was previously triggered nearly a year ago due
to a Moody's rating downgrade of Detroit. City officials have
been negotiating with counterparties UBS AG and SBS Financial
Products Company since then to avoid having to pay as much as
$440 million, or about 22 percent of its annual operating
budget, over several years.
Spokespeople for the counterparties declined to comment on
the latest trigger on Thursday.
Detroit's takeover is the first of any big U.S. city in over