Once-Bankrupt Detroit Takes Step Toward Shedding Junk-Bond Grade

(Bloomberg) -- Detroit moved one step closer to seeing its bond rating emerge from junk, in a sign of its recovery more than five years after becoming the biggest U.S. city ever to go bankrupt.

S&P Global Ratings Thursday raised its ranking of the city one notch to BB-, three steps below investment grade, because the government’s finances have been on the mend since coming out of bankruptcy in late 2014. The company said the change reflects Detroit’s ability to cover rising pension and debt costs in the years ahead without running budget shortfalls, a benefit of the court proceedings that allowed it to cut obligations it couldn’t afford after decades of population and economic decline.

"The one-notch upgrade to Detroit’s GO rating reflects our view of the city’s stabilizing financial position," John Sauter, an analyst at S&P, said in a statement.

The upgrade, while small, is the latest signal of the turnaround afoot for Michigan’s largest city, whose fortunes were once tethered to the automobile industry. In April, it emerged from state oversight after posting three years of budget surpluses, thanks to an increase in income-tax collections and rising home prices. In December, it passed a test in the bond market by selling debt backed only by its general obligation to repay for the first time since the bankruptcy.

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