Bloomberg News

Detroit Outlook Raised to Stable After Emergency Manager Named

March 15, 2013

Detroit’s credit outlook was raised to stable from negative by Standard & Poor’s after the governor named an emergency manager to run it.

Michigan Governor Rick Snyder yesterday chose Kevyn Orr, a Washington bankruptcy lawyer who helped Chrysler Group LLC reorganize in 2009, to lead the turnaround of the state’s largest city. A recent review declared it in a financial emergency with a deficit that hit nearly $327 million in 2012 and long-term debt topping $14 billion.

“We view the appointment of an emergency manager as a positive step toward regaining structural balance and improving the city’s overall financial condition,” said Standard & Poor’s credit analyst Jane Hudson Ridley.

The city’s continued B rating on general-obligation bonds, five steps below investment grade, reflects its financial imbalance, revenue shortfalls and long-term obligations including potential swap-termination payments and unfunded retirement costs, the company said.

A tax-exempt Detroit general-obligation bond sold in 2005 and maturing in April 2014 traded after S&P’s announcement at a 1.82 percent yield, the lowest since January, according to data compiled by Bloomberg. Other tax-exempt debt from Detroit maturing in 2023 traded at an average yield of 6.85 percent, down from 8.3 percent on Feb. 20, when it last traded.

Snyder, a Republican, declared a crisis on March 1 following a state review that reported a lack of progress cutting a deficit that would have been $936.8 million had the city not borrowed more. Detroit hasn’t had a budget surplus since 2004, according to the report.

Detroit lost one-fourth of its population from 2000-2010, which has reduced the tax base and strained basic services such as public safety and buses.

“The appointment of an EM allows the city to move forward in a more efficient manner, continuing to make the types of adjustments necessary to regain structural balance,” Ridley said.

To contact the reporter on this story: Chris Christoff in Lansing at cchristoff@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net


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