Wed Sep 18, 2013 6:31pm 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.'"
Bill Nowling, a spokesman for Detroit's emergency manager, Kevyn Orr, declined to comment on whether the city will miss the Oct. 1 payment other than to say, "Nothing has changed" since the city's mid-June report.
Orr said in June that most of the general obligation bonds are considered unsecured debt and would not be paid.
As for the city's general obligation debt rating possibly falling to D, Nowling said, "We don't comment on things before they happen."
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.
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