CHICAGO — Moody's Investors Service warned Wednesday it may downgrade Detroit's Ca-rated certificates of participation, saying it expects to resolve the outlook when and if the bankrupt city settles with the bond insurer that wraps the bulk of the certificates.
In a brief comment, Moody's said the downgrade review is due to the terms of the settlement between Detroit and Syncora Guarantee Inc., the bond insurer that holds $390 million of the certificates. The settlement features a mix of cash, downtown Detroit real estate, and two long-term asset leases.
"In our opinion it is likely that the recovery for creditors will be below 35% and as a result consistent with a C rating," analysts said.
Financial Guarantee Insurance Co. wraps the remaining $1.1 billion of the COPs. The insurer and the city are in the midst of court-ordered mediation talks, and reportedly close to a deal that would also include cash and land.
"The review will be resolved if and when a settlement with FGIC is made public," Moody's said.
The COPs have become one of the most controversial parts of Detroit's historic Chapter 9 case. The city is suing to repudiate the debt, saying it was issued in 2005 and 2006 with an illegal structure devised solely to avoid state-imposed debt limits. Syncora, once the city's most dogged opponent, struck a deal in September. That leaves FGIC the sole remaining major financial creditor in the case.
