SAN FRANCISCO — Standard & Poor’s Friday suspended its fund rating for the King County, Wash., investment pool, while at the same time affirming the county’s AAA general obligation bond rating.
The investment pool’s AAAf rating — the “f” is attached to all fund ratings — was suspended because of a lack of readily available information about one of the distressed asset-backed securities held by the pool, Standard & Poor’s said Friday. The fund’s S1 volatility rating was also suspended.
The agency’s policy allows it to suspend a rating — as opposed to withdrawing it — if the rating is likely to be reinstated, according to the news release announcing the rating suspension.
The Standard & Poor’s rating is the only fund rating on the King County investment pool.
The ratings agency had placed the fund on CreditWatch with negative implications in October, citing its exposure to three distressed asset-backed securities.
Since then a fourth security in the county’s holdings, Victoria Finance LLC, has also become impaired, but Standard & Poor’s said Friday’s suspension was triggered by the county’s holdings of the Mainsail II LLC structured investment vehicle. The Standard & Poor’s structured finance group suspended its Mainsail II rating last Wednesday because it has ceased to receive any information about it.
“The Cash Management Group within the Treasury Operations Section of the King County Department of Finance & Business Operations has been very forthcoming in providing us with all publicly available information to date,” Standard & Poor’s said in its news release. “However, due to the confidential nature of the restructuring proposals of the distressed SIVs, King County cannot supply sufficient information for us to effectively monitor the progress of the restructurings and provide a current assessment of the entire Pool.”
The agency said it will not provide any more comment on the pool’s possible future rating, except to say it depends on the outcome of the restructuring of the distressed SIV assets.
“If the restructured securities are rated ‘B’ or higher, the fund is likely to receive an investment-grade fund credit quality rating,” the news release said. “If, however, these distressed securities are restructured as unrated assets, we may not be able to rerate the pool.”
The $4.1 billion investment pool has been moving out of commercial paper holdings as they mature. Such holdings represented 25% of the pool’s assets in August, but they are now down to 5.6%, or $232 million, according to Standard & Poor’s, of which $207 million is attributed to the four impaired SIVs.
The only other SIV held by the county, Harrier Finance US, is slated to mature Friday, according to a report prepared for the county in October by Public Financial Management.
The King County pool invests cash reserves not only for county agencies, but also about 100 other special districts and government entities such as school, fire, sewer and water districts.
Of the pool’s $232 million in total holdings, only $13.9 million is attributable to the county’s general fund, which will spend $684.6 million this year, according to Standard & Poor’s.
“Given the magnitude of these potential losses relative to the size of the pool and in comparison to the size of the general fund budget and reserves, we do not view these distressed assets or the rating action on the investment pool as detrimental to the county’s GO rating,” said the ratings report released Friday. It affirmed the AAA bond rating, ahead of a planned issuance of $237 million in limited-tax GO refunding bonds payable from sewer revenues.
Moody’s Investors Service assigns its Aaa underlying rating to King County unlimited-tax GOs, and its Aa1 rating to limited-tax GOs, with a stable outlook.
In October, Fitch Ratings placed its King County ratings — AAA for unlimited-tax GOs and AA-plus for limited-tax GOs, on negative watch because of the investment pool’s troubles.
