KBRA Gives A Rating to Detroit Downtown Development Authority Refunding Bonds

Kroll Bond Rating Agency (KBRA) in New York, a credit rating agency registered with the U.S. Securities and Exchange Commission, has assigned the long-term rating of A with a Stable Outlook to the City of Detroit Downtown Development Authority (DDA) Tax Increment Revenue Refunding Bonds, Series 2024 (Catalyst Development Project).
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The Downtown Development Authority’s Tax Increment Revenue Refunding Bonds, Series 2024 have received an A rating from KBRA in New York. // Stock photo

Kroll Bond Rating Agency (KBRA) in New York, a credit rating agency registered with the U.S. Securities and Exchange Commission, has assigned the long-term rating of A with a Stable Outlook to the City of Detroit Downtown Development Authority (DDA) Tax Increment Revenue Refunding Bonds, Series 2024 (Catalyst Development Project).

According to KBRA, the rating was assigned because of the following credit considerations:

Credit Positives

  • FY 2023 pledged revenues provide pro forma 4.25x MADS coverage.
  • No additional parity bonds are permitted, with the exception of refunding bonds for savings.
  • Established growth trend in pledged revenues.
  • Plans for further substantial private investment within the downtown district boundaries that, despite not directly increasing pledged revenues, will further support taxable property valuation.

Credit Challenges

  • Despite an overall improving trend and an ongoing rebound as the pandemic wanes, the Detroit economy remains fragile, and if a substantial economic decline occurs in the near future, before the taxable property values have a chance to further stabilize, then debt service coverage ratios could weaken.
  • Potential for assessment reductions due to lower office space demand resulting from hybrid working arrangements.

KBRA says the rating can improve with “significant development and diversification in the district that is reflected in pledged revenue (tax) increases and higher debt service coverage.”

Declining property values, reduced investments, or other economic factors that weaken the available pledged revenues in the district further than current stress scenarios could cause the rating to go down.

Any change to the city’s or Wayne County’s tax practices that erodes DDA’s current insulation from historically weak county-wide property tax collections also could damage the rating, as could any actions by the city, state, county, or other taxing entities to reduce tax rates, reduce taxable property value, or in any other way weaken the pledged revenues.

To access rating and relevant documents, click here and register.