Reuters: Bankruptcy News: UPDATE 1-Fitch expects Detroit to miss a bond payment due Oct. 1

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UPDATE 1-Fitch expects Detroit to miss a bond payment due Oct. 1 Sep 18th 2013, 21:17 Wed Sep 18, 2013 5:17pm EDT Sept 18 (Reuters) - Fitch Ratings said on Wednesday it expects Detroit to miss payments due on the city's general obligation bonds on Oct. 1, an event that would prompt the credit agency to downgrade to D its ratings on Detroit's unlimited tax general obligation and limited tax obligation debt. "Fitch believes GO debt will not be paid as due on Oct. 1," the ratings agency said in a statement. "If the Oct. 1st debt service payment is missed, Fitch will downgrade both the ULTGOs and LTGOs to 'D.'" A spokesman for Detroit's emergency manager, Kevyn Orr, could not be reached immediately for comment. Orr said in June that the debt is unsecured and would not be paid. Fitch, which said Detroit's landmark bankruptcy, if it goes ahead, might be rewriting basic expectations of creditors during a debt workout, cut its ratings in June on the city's certificates of participation to D after a missed debt service payment. A decision by Detroit's emergency manager to treat unlimited tax general obligation (ULTGO)and limited tax obligation debt (LTGO) bonds and post-employment benefit payments as a single class of creditor was an unwelcome surprise, Fitch said. "If the Detroit case signals a shift towards lumping these obligations together and not levying taxes to support the apparently affordable ULTGO debt already approved by taxpayers, the outcome will lead Fitch to reconsider the impact on ratings," Fitch managing director Amy Laskey said. Fitch also said Michigan Act 436's strong oversight for struggling local governments in the state was being offset by the weak support for Detroit bondholders. "The city's bankruptcy filing demonstrates that state intervention mechanisms do not preclude credit deterioration or default," Fitch said. Link this Share this Digg this Email Reprints

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