Moody's cuts Detroit water debt to A2, A3

Moody's Investors Service said it downgraded to A2 from A1 the City of Detroit's $1.6 billion of outstanding rated water revenue debt secured by senior-lien net revenues

At the same time, Moody's said it downgraded to A3 from A2 the city's $679 million of outstanding rated water revenue debt secured by second-lien net revenues.

The ratings were also placed on watchlist for further downgrade.

Moody's said the downgrade reflects the system's significant costs, rising interest rate expenses and insufficient investments to honor bondholder puts in case of termination of one or more liquidity facilities from Financial Guaranty Insurance Co. that contain termination provisions.

The watch for further downgrade reflects the short-term risk to the system's liquidity from the possible termination of such liquidity facilities supporting its variable-rate series 2001C and series 2005B bonds.

Moody's said the city is planning to remarket those series of bonds to fixed-rate mode and terminate the standby bond purchase agreements upon conversion.

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