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Jefferson County OKs Fourth Extension

BRADENTON, Fla. - Jefferson County, Ala., commissioners Friday met in a special session and approved their fourth extension to debt forbearance agreements with liquidity providers, bond insurers, and swap counterparties.

After nearly 40 minutes of debate, commissioners voted 3 to 2 to enter into the agreements delaying approximately $100 million in payments related to the county's $3.2 billion of troubled variable- and auction-rate sewer debt. The fourth forbearance expires Nov. 17.

The extension Friday came after a previous forbearance agreement expired Thursday.

The delay in achieving a new forbearance agreement, plus the failure to move forward with a plan to restructure the sewer debt, late last week cost the county its investment-grade ratings on its non-sewer debt from Moody's Investors Service, and resulted in downgrades to levels just above junk status from Standard & Poor's.

Both rating agencies said the prolonged attempt to restructure the sewer debt, and general budgetary problems, increased the risk that Jefferson County would pursue a bankruptcy filing.

That conclusion apparently led to rumors on Wall Street that a bankruptcy filing was imminent, which county officials denied on Friday.

County commissioners in a special meeting Thursday were expected to pass a resolution asking Alabama Gov. Bob Riley to call a special session of the Legislature to consider a sewer debt restructuring plan, which was unveiled for the first time publicly during Thursday's special meeting.

However, only three of the five commissioners showed up for the meeting and ultimately voted to delay action on the resolution seeking a special session until tomorrow's regular county commission meeting.

"Efforts are still underway to get the governor to call the special session," Commissioner George Bowman said Friday. "I believe the [rating] downgrades were premature in light of the fact that we are moving as aggressively as possible to solve the restructuring of this debt to the satisfaction of all parties."

Moody's downgraded to Ba3 from Baa1 the rating on Jefferson County's $270 million of outstanding general obligation debt.

Moody's also downgraded $86.7 million of outstanding lease revenue warrants issued through the Jefferson County Public Building Authority to B1 from Baa2, $996.8 million of limited obligation school warrants secured by sales taxes to B1 from Baa2, $20.3 million of special tax bonds issued by the Birmingham-Jefferson Civic Center Authority to Ba3 from Baa1, and $40.86 million of debt issued by the authority and partially secured by beverage and lodging taxes collected by the county to B1 from Baa2.

The sewer revenue bonds continue to be rated Caa3 by Moody's, while the county's sewer and non-sewer debt remain on review for possible downgrade.

"It is Moody's belief that the county's failure to agree upon a plan for a solution to the sewer system's financial crisis in a timely fashion is inconsistent with an investment-grade rating on the general credit quality of the county," said a report released late Thursday.

Standard & Poor's on Friday lowered the county's outstanding GO warrant rating to BBB/A3 from A/A1, and lowered the county's GO debt rating to BBB from A. The agency also lowered its rating on the Public Building Authority bonds to BBB-minus from A-minus. The ratings remain on CreditWatch with negative implications.

"The lowered ratings reflect increased uncertainty regarding management's ability to address the county's worsening financial situation regarding the sewer system debt, which makes a bankruptcy filing increasingly possible," Standard & Poor's analyst James Breeding said in a statement. "In addition, the rating reflects a negative unrestricted general fund balance for fiscal 2007 and the inability to remarket the county's 2001B GO warrants, which could result in roughly $40 million in accelerated debt service payments during the next year."

Standard & Poor's now assigns a D rating on the Series 2003 B-2 through B-7 variable sewer revenue refunding warrants and a CCC rating on Series 2003 C-1 through C-10 auction-rate sewer warrants.

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