Moody's Investors Service said it has upgraded by one notch the ratings on Detroit, Mich.'s distributable state aid backed bonds.
The senior lien bonds were upgraded to Aa2, the second lien to Aa3, the third lien to A1, and the 4th lien to A2.
The outlook on four liens remains stable. The city had $723 million of outstanding rated distributable state aid backed bonds outstanding, as of June 30.
The Aa2 rating applies to the Distributable State Aid General Obligation (Limited Tax) Bonds, Series 2010; the Aa3 rating applies to the Local Government Loan Program Revenue Bonds (City of Detroit Unlimited Tax General Obligation - Second Lien), Series 2010E; the A1 rating applies to the Local Government Loan Program Revenue Loan Bonds (City of Detroit Limited Tax General Obligation - Third Lien), Series 2012C, and the A2 rating applies to certain sub-series of the Local Government Loan Program Revenue Bonds, Series 2014G (City of Detroit Unlimited Tax General Obligation - Fourth Lien).
The distributable state aid ratings are based solely on the security provided by the direct intercept of state aid. The Aa2 senior lien rating reflects the broad security of pledged DSA, derived from statewide sales tax revenues; the legal structure and programmatic protections provided to bondholders through the intercept of DSA; and healthy debt service coverage ratios.
The ratings are not directly tied to, but are informed by the credit strength of the State of Michigan and are capped at one notch below the state's general obligation rating. Michigan's general obligation debt was upgraded to Aa1 with a stable outlook from Aa2 with positive outlook on July 24.
The Aa3, A1, and A2 ratings on the second lien, third lien, and fourth lien debt, respectively, reflect the subordinate pledges and lower debt service coverage ratios.
