Standard & Poor's Ratings Services on Wednesday pushed the investment grade ratings on $5.42 billion of Detroit water and sewage revenue bonds down into the junk category, citing uncertainty over a potential restructuring of the debt by the emergency manager running the city.
Kevyn Orr, the corporate bankruptcy attorney picked by the state of Michigan in March to manage its biggest city, last month proposed spinning off Detroit's water and sewer services into an independent authority that could redeem or restructure outstanding revenue debt.
S&P said under a restructuring the repayment terms could change, including principal and interest amounts and the amortization schedule. It added that the lower BB-minus ratings were placed on a watch list until a clearer plan emerges for the senior-lien water and sewage bonds, which had been rated A-plus, and the second-lien bonds, which had been rated A.
The agency also said the ratings could drop further to the C category if a debt restructuring or negotiated exchange of the debt is likely to, or will, occur.
Detroit's credit ratings progressively fell into the junk category as its fiscal problems mushroomed, culminating with the appointment of Orr who has said there is a 50/50 chance the city could file what would be the biggest Chapter 9 municipal bankruptcy ever.
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