Standard & Poor's Ratings Services said it corrected by raising its underlying rating (SPUR) on Jefferson County, Ala.'s series 2000 limited obligation school warrants, issued for and supported by Jefferson County Board of Education, 13 notches to A-plus from CCC.
The outlook is stable.
The upgrade reflects Standard & Poor's view that the warrants are an obligation of the board despite their issuance by Jefferson County. The rating service believes the county's emergence from bankruptcy in December 2013 supports this viewpoint; Standard & Poor's recognizes the series 2000 warrants were not impaired under the county's Chapter 9 plan of adjustment.
"We do not expect to change the rating further during the two-year outlook period because we believe the board's property tax base, which supports pledged revenue, will likely remain relatively flat or experience only very modest growth during the economic recovery due to Gardendale's planned separation from the board," said Standard & Poor's credit analyst Jim Tchou. "We, however, could raise the rating if the tax base were to grow significantly, resulting in substantially higher debt service coverage. Although we do not believe it will likely occur, we could lower the rating if the tax base and pledged revenue were to experience sizable decreases or if the board were to issue parity obligations, resulting in debt service coverage deteriorating to levels we no longer believe correspond with the rating level."
Standard & Poor's has determined the warrants are not an obligation of the county but are instead an obligation of the board because holders of the warrants retained all of their limited payment rights under the lease indenture pursuant to the Chapter 9 plan of adjustment; furthermore, no disruption in the collection of pledged revenue or remittance of pledged taxes to the trustee for debt service payments occurred.
The rating also reflects Standard & Poor's assessment of the property tax pledge, which it views as a special tax of the board.
The warrants are payable solely from, and are secured by, revenue received by the county from the leasing of certain property to the board. The board's obligation to make rental payments is unconditional and not subject to annual appropriation.
