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UPDATE 2-S&P cuts Detroit GO bond ratings to D following default
October 2, 2013 / 4:53 PM / in 4 years

UPDATE 2-S&P cuts Detroit GO bond ratings to D following default

Oct 2 (Reuters) - Standard & Poor’s said it cut its rating on Detroit’s general obligation debt to D from C on Wednesday because the city missed payment on its bonds, making S&P the second ratings agency to downgrade Detroit this week.

Fitch Ratings cut its rating on Monday, citing the city’s imminent debt default.

“The downgrade reflects the nonpayment of debt service to the paying agent for the scheduled principal and interest payment date of Oct. 1,” S&P credit analyst Jane Hudson Ridley said in a statement.

S&P said the downgrade affects about $411 million of unlimited-tax GO bonds and $197 million of limited-tax GO bonds.

Detroit on Tuesday skipped a payment on more than $600 million of general obligation debt that the city’s emergency manager, Kevyn Orr, had determined to be unsecured.

In June, Orr announced a moratorium on paying debt service on unsecured debt, including certain GO bonds and $1.45 billion of pension debt that the city defaulted on that month.

With Detroit sinking under more than $18 billion of debt and other obligations, the city on July 18 filed what would be the biggest Chapter 9 municipal bankruptcy in U.S. history.

The city is continuing to make payments on its water and sewer revenue bonds, which Orr had deemed secured, Moody’s Investors Service said on Wednesday.

However, the rating agency warned that the revenue debt still faces risks, including Orr’s assertion that the debt was subject to negotiation with bondholders and his plan for creating a new authority to operate water and sewer systems and restructuring the outstanding bonds.

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