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S&P action in Detroit reflects Moodys view
Q
I read where Standard & Poor’s just downgraded Detroit water and sewer bond ratings because of concerns over the possibility of the water and sewer board being restructuctered. Apparently, this might change everything for bondholders. Any thoughts on this new development?
A
James A. Klotz responds:
First, Moody’s had already downgraded Detroit’s water and sewer bonds, so we view this action as a “catch-up” by S&P. Little has changed since Moody’s action that would cause us to modify our opinion (see: “Detroit Issues Proposal for Creditors“).
More important, most of Detroit’s water and sewer debt, including the bonds you hold, is insured by various bond insurers who have affirmed their commitment to pay debt service in full if the city of Detroit fails to do so.
Finally, the emergency manager has indicated that debt with secured revenue streams will continue to be paid, although some could be restructured. We believe that the bond insurer industry has strengthened recently and can fully meet its obligations to bondholders in a timely manner if called upon to do so.
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