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Jefferson OKs Forbearance Extension

BRADENTON, Fla. - The Jefferson County, Ala., Commission yesterday approved a two-week extension of forbearance agreements with creditors.

Creditors had approved the third extension before the document was sent to the commission, Patrick Darby, an attorney representing the county, said in an e-mail on Thursday.

The forbearance extension comes as Jefferson County officials continue to negotiate with bond insurers, investment banks, and swap counterparties on how to restructure $3.2 billion of sewer debt, most of which is variable- and auction-rate securities. Interest rates for the bonds have soared because of bond insurer rating downgrades.

The forbearance also delays a $53 million principal payment owed to redeem variable-rate sewer warrants for which repayment has been accelerated because of bond insurer downgrades.

In light of the mounting financial burden, underlying ratings on the sewer debt were lowered to Caa3 by Moody's Investors Service. Standard & Poor's now assigns a D rating on the Series 2003 B-2 through B-7 variable sewer revenue refunding warrants due to the missed payment, and a CCC rating on Series 2003 C-1 through C-10 auction-rate sewer warrants.

As Jefferson County's financial problems mounted, Financial Security Assurance Inc. told a local publication that it would temporarily suspend writing bond insurance in Alabama until the county resolves its difficulties. Triple-A rated FSA insures $352 million of Jefferson County's sewer debt and reportedly is working with the county on restructuring its debt.

"We are diligently working with Jefferson County and its bankers and advisers and are optimistic that we will play a significant role in finding a solution," said FSA president and chief operation officer Sean McCarthy. "In Alabama, as in every state, we look at every transaction on an individual basis."

FSA previously declined to confirm the newspaper report and the company has insured at least two deals brought by other Alabama issuers this year, including a $43.6 million transaction sold by Huntsville on April 24, according to Thomson Reuters data.

Competitor Assured Guaranty Corp. said yesterday that it was insuring debt in the state.

"We were aware that there's been a lot of concern about what's going on in Alabama as a result of what's happening with Jefferson County and we just wanted to makes sure issuers in the state of Alabama, as well as market professionals doing deals in Alabama, knew we were still writing new business in Alabama," said John Trahan, managing director of public finance for Assured Guaranty.

Triple-A rated Assured has insured a number of deals this year in Alabama and is currently reviewing at least six others, Trahan said.

Assured has no primary exposure to Jefferson County, but it does have $578 million in reinsurance exposure.

Financial Guaranty Insurance Co., which has $1.19 billion of net par exposure on Jefferson County's variable-rate debt, and XL Capital Assurance Inc., which has $811 million of exposure, announced recently that they engaged a team of local and national experts to assist in restructuring negotiations with the county. Both FGIC and XL Capital Assurance have lost their triple-A ratings due to the subprime mortgage crisis.

 

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