(Detroit) – Thanks to the continued financial ignorance and ineptitude of Detroit City Council members, and the obtuse behavior of lead city attorney Krystal Crittendon – ratings agency Fitch has downgraded the bond rating for the City of Detroit to junk status.
That means the city will have to pay much higher rates on the money it borrows. It also means it will be exceedingly difficult to raise money since many institutional investors such as pension funds and mutual funds avoid putting money into anything rated below investment grade by the ratings agencies.
Several areas of the cities bonds were downgraded including the city’s general obligation bonds from B to CCC, and a bond related to Detroit Retirement System Funding from B to CC. Fitch indicated that the recent lawsuit by Krystal Crittendon is what triggered the downgrade.
Unaffected by a downgrade was the Detroit Water and Sewerage Department, which has a separate bond rating that tends to be higher than the regular city bond ratings. However, James Fausone – the chairman of the water board said the water department backed off of their plans to sell almost $600 million worth of bonds this week. That money was going to be used to restructure existing loans for that department, saving it money. The deal may still get done, but only because the bonds are backed by regional water bills consisting mainly of suburban homeowners.
Ratings agency has put the Detroit water department on notice that it may lower the bond rating of the water department pending a bankruptcy by the City of Detroit.