NEW YORK Feb 28Analysts at Fitch Ratings on
Friday cut some $4 billion worth of bonds issued on behalf of
the Water and Sewerage Department of Detroit to junk, citing the
weak finances and outlook for the system run by the bankrupt
The Wall Street agency dropped $1.1 billion of senior lien
water bonds and $1.6 billion of senior lien sewer bonds one
notch to BB+ from BBB. About $1.35 billion of second lien water
and sewer bonds were cut one notch further to BB.
"Fitch believes financial improvement over the near term is
unlikely given recent disclosure regarding the full scope of
customer delinquencies," analysts said in a statement. "Fitch's
concerns about delinquencies are further exacerbated by the
city's status as a bankrupt entity."
Saddled with some $18 billion in debt, Detroit declared
bankruptcy last July, the biggest municipal bankruptcy filing in
U.S. history. A court-appointed emergency manger released a
blueprint last week detailing how the city will restructure its
debt and ultimately emerge from bankruptcy.
Unlike many general obligation bonds, debt secured by the
city's water and sewer revenues are considered secured, meaning
holders are expected to recover 100 percent of their principal.
Fitch said uncertainty remains about attempts by the
emergency manger to impair creditors through changes to certain
terms, including the removal of call protections that would
allow Detroit to refinance the debt.
"Fitch believes that there is no legal basis to compel
bondholders to accept such impairment as proposed in the plan of
adjustment," the ratings agency said.
The rating agency said the water and sewer authority's
ability to increase rates while improving collections from
residents will be important in maintaining the rating.
If the authority cannot break even on its operations, it
would be vulnerable to further downgrades, Fitch added.
The bonds remain on ratings watch negative, and Fitch noted
that the authority's debt load would likely remain high for the