BRADENTON, Fla. - Standard & Poor's downgraded its long-term underlying ratings on Walker County, Ga.'s 2008 general obligation sales tax bonds four notches, to BBB-plus from AA-minus.

The outlook is negative. The county had $12.84 million of outstanding GO sales tax bonds as of the fiscal 2012 audit, the latest available on EMMA.

A 1% special purpose local option sales tax and the county's GO pledge secures the bonds, S&P said May 6.

The downgrade is based on the county's weak liquidity due to its guarantee of liabilities incurred by the Hospital Authority of Walker, Dade, and Catoosa counties, said analyst Hilary Sutton. Over the past several years, the authority has incurred several loans that are guaranteed, in full or in part, by the county.

"In our view, the supporting agreements contain non-remote events of default that give the creditors the right to call for an immediate repayment of principal," she said. "Should such an event occur, county representatives report the county would issue long-term debt."

Sutton said that the county would need, and lacks, sufficient cash to bridge the time it takes to repay the loan and issue the bonds. The county's share of principal pursuant to the agreements is 22% of its general fund revenue in 2013 and is a risk given the lack of internal liquidity.

"We believe the county is subject to high refinancing risk as two notes it guarantees as well as the tax anticipation notes come due in December and represent 14% of debt outstanding," she said.

The county issued $5.9 million of TANs on March 28 that mature on Dec. 31, according to EMMA.

S&P said the county's budgetary flexibility is weak, and that a draft of the fiscal 2013 audit shows a $1.3 million general fund balance that is 5.9% of adjusted expenditures.

"The county has spent down reserves over the past several years rather than raising its millage rate - management reports the last tax increase was four years ago - or cutting expenditures," Sutton said. "We expect structural deterioration as management projects a negative balance at fiscal 2014 year-end."

S&P said the negative outlook reflects the county's weak liquidity stemming from loans it guarantees that are subject to immediate acceleration. The outlook also reflects the county's financial position and the fact that a budget for 2014 has not yet been adopted more than six months into the fiscal year.

Located in the northwest corner of Georgia near Lookout Mountain, Walker County has a population of 68,000, and is about 30 miles south of Chattanooga, Tenn.

There are 159 counties in Georgia, and Walker is among nine counties that operate under the sole commissioner system where one elected official runs the municipality.

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