News Column

Fitch Maintains Negative Watch on Wayne County, MI GOs

May 2, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings maintains the Negative Rating Watch for the following Wayne County, Michigan bond ratings:

--$190.9 million limited tax general obligation (LTGO) bonds issued by Wayne County 'BB-';

--$54.9 million building authority (stadium) refunding bonds, series 2012 (Wayne County limited tax general obligation) issued by Detroit/Wayne County Stadium Authority 'BB-';

--$210.5 million building authority bonds issued by Wayne County Building Authority 'BB-';

--Wayne County unlimited tax general obligation (ULTGO) (implied) 'BB'.

SECURITY

LTGO bonds issued by the county carry the county's general obligation ad valorem tax pledge, subject to applicable charter, statutory and constitutional limitations.

Stadium authority and building authority bonds are secured by lease payments from the county to the respective authority. The obligation to make the rental payments is not subject to appropriation, setoff or abatement for any cause, and carries the county's limited tax general obligation pledge.

KEY RATING DRIVERS

RAPID FINANCIAL DETERIORATION: The speculative grade ratings stem from the county's considerably narrowed liquidity position, the deepening of the general fund accumulated deficit and Fitch's concern regarding the limited options for elimination of the negative position.

NEAR-TERM LIQUIDITY CHALLENGES; MARKET ACCESS UNCERTAINTY: The Negative Watch reflects the county's highly illiquid general fund, dependent upon both inter-fund and external short-term borrowing for cash flow. At the close of fiscal 2013, Fitch calculated a quick ratio of zero shortly after the August tax collection date.

STRESSED ECONOMY SLOW TO RECOVER: The weak local area economy is reflected in elevated unemployment rates, population loss, and below-average income levels. The tax base suffered significant declines during the last recession but the rate of decline has recently slowed.

ACCUMULATED DEFICIT DEEPENS: The county recorded a $10.3 million (1.7% of spending) general fund operating deficit for FY2013, inclusive of a $49 million transfer from the delinquent tax revolving fund (DTRF), bringing the accumulated unrestricted general fund deficit to negative $156 million, equivalent to a more than a quarter of general fund spending.

PLAN COULD IMPROVE FINANCES IF SUCCESSFULLY IMPLEMENTED: The county's proposed deficit elimination plan (DEP) relies upon a transfer of the $81 million unrestricted DTRF balance and the sale of wastewater treatment facilities to an authority, the latter of which carries significant execution risk. The county states that if the county commission and state treasurer approve the DEP, it would have the authority to do both. The plan also identifies options for eliminating the $30 million structural operating imbalance; approximately 1/3 of these will require negotiation contractual agreement with labor.

LEASES CARRY GO PLEDGE: The parity ratings on stadium authority and Building Authority bonds reflect the fact that county lease rental payments are not subject to abatement or appropriation and carry the county's limited tax general obligation pledge.

RATING SENSITIVITIES

INABILITY TO ACCESS MARKET FOR CASH FLOW: Inability to access the market if needed in an economically feasible manner for cash flow borrowing would severely constrain the county's liquidity position and would trigger a downgrade.

FURTHER DETERIORATION OF LIQUIDITY: Deterioration of the county's already precarious liquidity position would likely result in a downgrade. The county has postponed the $100 million in tax anticipation note (TAN) borrowing that was anticipated to take place in April. It is now slated for mid-May, or may be cancelled entirely if the county treasurer or county commission releases sufficient cash from the $81 million unrestricted portion of the DTRF.

FAILURE TO REDUCE DEFICIT: Fitch believes the county remains severely challenged to stem the decline in its financial position and show material improvement in the near term. Lack of significant progress toward accumulated deficit reduction within the current fiscal year, as evidenced by improvement in its liquidity position and unrestricted general fund balance/deficit, would place negative pressure on the rating.

For further information, please refer to 'Fitch Maintains Negative Watch on Wayne County, MI GOs' (Feb. 6, 2014).

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors, Underwriter, Bond Counsel, and Financial Advisor.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Arlene Bohner

Director

+1 212-908-0554

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Richard Raphael

Managing Director

+1 212-908-0506

or

Committee Chairperson

Jessalynn Moro

Managing Director

+1 212-908-0608

or

Media Relaions

Elizabeth Fogerty, +1 212-908-0526

elizabeth.fogerty@fitchratings.com




Source: Fitch Ratings


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