BRADENTON, Fla. - Bond insurance policies do not promise to maintain investment-grade ratings, nor do the policies promise that insurers won't participate in transactions that jeopardize ratings, Financial Guaranty Insurance Co. and Syncora Guarantee Inc. said in a court brief filed Monday.

The brief details arguments why Jefferson County, Ala.'s counterclaims against them should be dismissed.

"The county incorrectly bases its counterclaims against the insurers on promises and obligations the insurers never made and that are not contained in any of the insurance policies or other documents governing the [county's sewer] warrants," the insurer's said in a 12-page brief filed in federal court in Birmingham, which is the Jefferson County seat.

FGIC and Syncora, along with the county's bond trustee, the Bank of New York Mellon, filed a federal lawsuit Sept. 16 seeking a receiver for Jefferson County's financially troubled sewer system.

In opposing the appointment of a receiver, Jefferson County also filed a counterclaim that said the insurers were negligent and that resulted in their rating downgrades, that they breached their contracts with the county by failing to provide investment-grade insurance, and that they committed fraud by failing to disclose risks associated with their investment portfolios and residential mortgage-backed securities.

The bond insurance policies "do not contain the promise invented by the county to maintain 'investment-grade insurance' or not engage in transactions that could jeopardize the rating," the insurers said in their brief. "The county may not unilaterally and retroactively impose new responsibilities on the insurers where none existed by their contract or relationship."

FGIC and Syncora, formerly XL Capital Assurance Inc., insure about $2 billion of the county's $3.2 billion of outstanding sewer system debt that is in troubled variable- and auction-rate mode issued between 2002 and 2003.

The legal problems stem from a financial crisis surrounding Jefferson County's sewer system. The county has been negotiating since February to restructure the debt and forbearance agreements have been in place to delay some debt payments. The sewer forbearance agreements expire at the end of this week, but county commissioners have scheduled a special meeting on Thursday to approve extending those agreements until Dec. 8.

Alabama Gov. Bob Riley stepped in to facilitate negotiations in late August. About two weeks ago details emerged about a restructuring plan in which Jefferson's creditors agreed to $1 billion in concessions, but the county is having difficulty coming up with about $30 million of extra revenue needed to make the plan work.

The financial crisis, however, continues to raise the possibility that Jefferson County might ultimately be required to file the largest municipal bankruptcy in U.S. history.

However, it isn't alone in attempting to fight insurers that provided credit enhancement for debt that has seen interest rates soar because insurers' ratings were downgraded amid the subprime mortgage collapse.

Similar arguments regarding contractual arrangements are playing out in a federal lawsuit filed by New Orleans against Ambac Assurance Corp. A motion filed by Ambac to dismiss New Orleans' lawsuit is pending in the Eastern District of Louisiana.

Three California cities - Los Angeles, Stockton, and Oakland - have filed separate lawsuits in state Superior Court against several insurers, including Ambac, FGIC, and Syncora. Attorneys are attempting to have those cases moved to federal court.

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