Detroit Outlook Raised to Stable After Emergency Manager Named

Detroit’s credit outlook was raised to stable from negative by Standard & Poor’s after the governor named an emergency manager to run it.

Michigan Governor Rick Snyder yesterday chose Kevyn Orr, a Washington bankruptcy lawyer who helped Chrysler Group LLC reorganize in 2009, to lead the turnaround of the state’s largest city. A recent review declared it in a financial emergency with a deficit that hit nearly $327 million in 2012 and long-term debt topping $14 billion.

“We view the appointment of an emergency manager as a positive step toward regaining structural balance and improving the city’s overall financial condition,” said Standard & Poor’s credit analyst Jane Hudson Ridley.

The city’s continued B rating on general-obligation bonds, five steps below investment grade, reflects its financial imbalance, revenue shortfalls and long-term obligations including potential swap-termination payments and unfunded retirement costs, the company said.

A tax-exempt Detroit general-obligation bond sold in 2005 and maturing in April 2014 traded after S&P’s announcement at a 1.82 percent yield, the lowest since January, according to data compiled by Bloomberg. Other tax-exempt debt from Detroit maturing in 2023 traded at an average yield of 6.85 percent, down from 8.3 percent on Feb. 20, when it last traded.

Snyder, a Republican, declared a crisis on March 1 following a state review that reported a lack of progress cutting a deficit that would have been $936.8 million had the city not borrowed more. Detroit hasn’t had a budget surplus since 2004, according to the report.

Detroit lost one-fourth of its population from 2000-2010, which has reduced the tax base and strained basic services such as public safety and buses.

“The appointment of an EM allows the city to move forward in a more efficient manner, continuing to make the types of adjustments necessary to regain structural balance,” Ridley said.

To contact the reporter on this story: Chris Christoff in Lansing at cchristoff@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.