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Jefferson Co., Ala., Sewers Cut to Ca by Moody's

Moody's Investors Service said it has downgraded to Ca from Caa3 the rating on Jefferson County, Ala., $3.14 billion in outstanding sewer revenue warrants; the outlook remains negative.

The warrants are secured solely by revenues of the sewer system available after paying the sewer system's operating and maintenance expenses. The county has filed for bankruptcy protection and has been in default on certain sewer warrants since 2008.

The downgrade of Jefferson County Sewer's revenue rating to Ca reflects an increase in expected loss on the warrants, due to the Bank of New York Mellon's (long-term rating Aa1 stable) suspension of all payments on the outstanding warrants, as well the likely degree of insufficiency of sewer revenues relative to debt service.

The Ca category is consistent with a recovery rate on defaulted bonds in the range of 35% to 65%. The negative outlook reflects the possibility that the ultimate recovery rate could fall below 35%. The Ca is an underlying rating and does not incorporate payments from financial guarantors that have insured portions of the debt.

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