Many towns and cities across America are struggling with high debt levels and out-of-control public pensions. FOX Business looks at the municipalities with the lowest ratings at the three major ratings firms: Standard & Poor’s, Fitch Ratings, and Moody’s Investors Service. Read more on the Mounting American Pension Crisis here.
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1. Detroit, Mich.
Detroit, Mich. [D Fitch | Caa3 Moody’s] – The Motor City filed for Chapter 9 bankruptcy protection in July. A judge approved the move in early December, clearing the way for the embattled city to renegotiate its $18.5 billion debt burden. Detroit is rated ‘D’ at Fitch, indicating it’s in default. Moody’s has Detroit at “Caa3,” with a negative outlook, suggesting its obligations are “judged to be of poor standing and are subject to very high credit risk.”
2. Stockton, Calif.
Stockton, Calif. [Ca Moody’s | CCC+ S&P] – Stockton, a city of roughly 300,000 people, filed for Chapter 9 bankruptcy in June 2012. It suffered under a debt load of between $500 million and $1 billion. At the time, it was the largest municipal bankruptcy by population. Moody’s rates Stockton at ‘Ca,’ indicating its obligations are “highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.” The rating company’s outlook is “negative.”
3. Pontiac, Mich.
Pontiac, Mich. [Caa1 Moody’s] – Pontiac is an economically-depressed community outside of Detroit. The town’s 60,175 residents have a median annual income of $29,189, according to the Commerce Department, compared to the Michigan average of $48,669. Moody’s rates the town at Caa3, suggesting its obligations are in “poor standing and are subject to very high credit risk.” The ratings company said in a 2012 memo that the rating is based on Pontiac’s “history of fiscal distress and narrow liquidity,” along with the “severely challenged local economy.” In what is a sign of hope for the embattled town, Moody’s changed its outlook to “developing” from “negative” in 2012 amid “uncertainty surrounding several pending events that could impact the city's overall credit profile.”
4. Jefferson County, Al.
Jefferson County, Al. [Caa3 Moody’s] – Jefferson County broke the record books when it filed for bankruptcy with $4.2 billion in debt in November 2011. It took just fewer than two years for Detroit to break that record. The Alabama county with a population of 660,009 has since emerged from bankruptcy after negotiating a plan to reorganize its massive sewer debt.
In a recent note, Moody’s said the warrants Jefferson County is issuing to refinance its debt “carry materially less credit risk than the outstanding debt because of the large reduction in principal through the bankruptcy process and establishment of a plan to resume debt service payments.” While the ratings company hasn’t been asked to rate that new debt, it believes it will be “non-investment grade investments at the upper end of the speculative grade rating categories … subject to substantial-to-high credit risk.”
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