CHICAGO — Standard & Poor's dropped Wayne County, Mich.'s limited-tax general obligation rating to junk citing its weakening financial position, and warned of the potential for further deterioration.
Standard & Poor's lowered its rating on the county that is home to Detroit late Friday. The rating dropped to BB-plus from BBB-minus. The outlook is negative.
The action marked the final strike against the county's investment grade status after Moody's Investors Service stripped it of its investment grade rating earlier this month. Fitch Ratings already assigned junk status to the credit.
"The negative outlook reflects the magnitude of closing the county's structural budget gap and eliminating the accumulated deficit in the near term, and that the time frame for making the changes could be drawn out beyond the county's current expectations," said Standard & Poor's analyst Jane Ridley.
The county has the benefit of anchoring a sizable metropolitan statistical area in southeast Michigan, but negative demographic trends and a weakening economy have been contributing factors in the county's financial challenges.
The rating reflects analysts' expectations that the county is trying to stabilize its finances through contract and other adjustments.
"We understand that the steps involved in the county's planned strategy will allow liquidity to improve markedly, and, as such, we do not expect to see a significant liquidity crunch in the short term," the report said. "However, until clear and measurable progress has been demonstrated, the rating will reflect the current status of the county's financial and debt profile."
Wayne County officials recently warned the county could run out of cash by next summer. The county is the largest in Michigan.
Moody's stripped the county of its investment-grade rating on Feb. 6, downgrading it three notches to Ba3 from Baa3. The outlook remains negative even at the lower rating, the firm said. Fitch Ratings put the county's already junk-bond ratings on negative watch.
Both rating agencies noted the county's stressed financial position, which became clearer on Feb. 5 when county Executive Warren Evans released an audit that showed the county's operational deficit was higher than expected and, with a chronic structural shortfall, was quickly burning through its remaining cash.
Evans said the county would be almost out of cash by June 2015 and could be in a negative liquidity position by August 2016.
A debt restructuring, state takeover and even Chapter 9 are all options on the table, Evans said, though he added he believes the county could stabilize its own finances.
Fitch rates the county's outstanding limited-tax general obligation bonds and building authority bonds BB-minus and has an implied unlimited-tax GO rating of BB. Wayne has just under $700 million of LTGO bonds and $302 million of LTGO notes.
