With no consensus on how to stop Detroit from running out of cash, credit rating agencies are slashing the city's already low ratings deeper into the junk category.
Fitch Ratings on Thursday dropped some of the city's ratings to the single-B level. That followed downgrades on Tuesday by Moody's Investor's Service. Both credit rating agencies warned more cuts are possible as the city and the state of Michigan struggle to agree on a plan to keep Detroit financially afloat.
"Fitch sees no assurance that the considerable hurdles to implementing urgently needed changes in the city's financial profile will abate," the rating agency said on Thursday.
Michigan's efforts to aid Detroit through its controversial emergency manager law have been stymied by a court challenge that led a judge to apply the state's Open Meeting Act to meetings of a review team charged with recommending a solution.
The team concluded on Wednesday that Detroit faces severe financial stress and agreed to pursue a consent agreement, according to Terry Stanton, a spokesman for the Michigan Treasury.
However, the team has not yet made a recommendation to the governor - something it must do by a Monday deadline, he said, adding that Governor Rick Snyder would then have 10 days to act on the recommendation.
That deadline was complicated by a state judge's order on T uesday putting the team's work on hold ahead of a March 29 court hearing on Open Meeting Act violations.
Stanton would only say that the state plans to file an emergency appeal of the judge's order with the Michigan Appeals Court on Th ursday.
Meanwhile, a coalition of the city's labor unions plan to announce o n F riday results of ratification votes on contract concessions tentatively reached with Mayor Dave Bing's administration.
Fitch said it dropped Detroit's unlimited tax general obligation rating to B from BB-minus, its limited tax GO rating to B-minus from B-plus, while the rating on about $1.5 billion of pension obligation certificates of participation fell to B from BB-minus.
The city, which is expected to run out of cash this spring, has just over $1 billion of outstanding GO debt, according to Fitch, which has had Detroit's ratings on review since December.
Fitch also cited Moody's Investors Service downgrade on Tuesday of Detroit's ratings - a move that triggered a termination event requiring the city to pay counterparties on interest rate swaps $50 million a year plus interest on the unpaid balance for seven years.
"While not a substantial amount of the overall budget, the city's precarious financial position is poorly equipped to accommodate this increased expense," Fitch said in a statement.
Bing has said he plans to renegotiate a payout term with the counterparties.
Fitch's other concerns included limited progress by the city in cutting expenses and the potential appointment by the Michigan governor of an emergency manager to run the city. In the latter case, Fitch said the swap termination payment would be due immediately.
In a letter to Snyder on Thursday, three Michigan U.S. congressmen raised concerns about the appointment of a financial manager, posing several questions about several related issues, including why the state was not proposing any direct financial assistance to Detroit.
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