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Detroit Defaults On More Than $600 Million Of General Obligation Bond Debt, Reports Moody's

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DETROIT DEBT
FILE - This Oct. 24, 2012 file photo shows an empty field north of Detroit's downtown. Detroit, which on Thursday, July 18, 2013, filed the largest municipal bankruptcy case in American history, owes as much as $20 billion to banks, bondholders and pension funds. The city can get rid of its gargantuan debt, but a bankruptcy judge can?t bring back residents or raise its dwindling revenue. (AP Photo/Carlos Osorio, File) | AP

DETROIT -- DETROIT (AP) — Detroit, not unexpectedly, has defaulted on its most recent general obligation bond debt payment, Moody's Investors Service said Wednesday.

Detroit has $641 million in unsecured general obligation bonds and "no unsecured debt is being paid right now," Bill Knowling, a spokesman for state-appointed Detroit emergency manager Kevyn Orr, told The Associated Press.

An interest-only payment of about $4.3 million was made Tuesday on $479 million in secured general obligation bonds, Nowling said.

Analysts in the rating agency's Chicago office said Tuesday's missed payment by the bankrupt city was no surprise.

"The actions ... are consistent with our expectations and the emergency manager's proposal to creditors that controversially split creditors into two classes — secured and unsecured," Moody's wrote.

Orr is steering Detroit through the largest municipal bankruptcy filing in U.S. history. He has said that Detroit's debt is $18 billion or more.

Orr defaulted on $2.5 billion of the city's unsecured debt in June, around the time he asked creditors to take pennies on the dollar for debt owed them.

Debt payments by Detroit's water and sewer system, which serves a wide area of southern Michigan that includes about half of the state's population, are not affected by the financial crisis, Nowling said.

Water and sewer system bonds "are secured and with revenue from water and sewer system fees," he said. "These bonds are current."

According to Moody's, there's "a still relatively low probability of default" on the sewer and water bonds, "but much increased compared to our expectations prior to the June plan" by Orr to restructure the water system.

"Moody's ratings on the city of Detroit's debt remain on review for downgrade as we evaluate the potential risks to creditors," the rating service said. "Uncertainty around legal proceedings and creditor negotiations increase risk of diminished recovery for these securities if a default were to occur."

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