Jefferson County, Ala,, Releases Memo on Sewer Debt

BRADENTON, Fla. - Jefferson County, Ala., yesterday released a memo from its recently hired disclosure counsel "pertaining to the county's obligations and potential liability under the federal securities laws" for disclosing information relating to the county's troubled outstanding sewer debt obligations.

The memo, from Balch & BinghamLLP partner J. Foster Clark, comes as Jefferson County officials are coping with multiple bond insurer downgrades and significantly higher interest rates on variable- and auction-rate debt.

On Monday, Standard & Poor's downgraded the underlying rating on $3.2 billion of outstanding sewer debt to BBB from A.

The county has about $2 billion in outstanding auction-rate debt and has a massive $5.59 billion swap program also being pressured by changes in market rates.

Foster's memo said the county has no obligation under the federal securities laws to speak, update the market, or provide investors with information regarding the county's outstanding debt "except where there is a contractual obligation to do so, such as under the county's continuing disclosure agreements."

The county, Foster said, "carefully prepared a written material event notice" that was filed on Feb. 20 and "the notice is available to the public and speaks for the county."

The memo also explains that county officials could be subject to the antifraud provisions of federal securities laws if statements they make are inaccurate or incomplete. The memo advises county officials to refrain from making public statements about county debt-related matters or the financial situation of the county until a comprehensive disclosure statement is available.

In addition to last week's notice, the county and its advisers are preparing a comprehensive disclosure package, Clark's memo said, noting, "This is a significant undertaking and will take several weeks to complete."

"The county is in a difficult financial situation and is working very hard to collect and analyze the information that is necessary to formulate its plans," Clark said yesterday in an interview. "They are eager to provide full and accurate information to investors.

"The recent material event notice disseminated last week by the county is an example of their willingness to go beyond the minimum disclosure requirements," Clark said. "As soon as reliable financial information is available, it will be released."

Foster's memo concerning disclosure and the release of information is appropriate, said Michael Wiener, a bond attorney with Holland & KnightLLP.

"They have taken a reasonable position," Wiener said after reviewing the memo. "What they are saying is that they will disclose to everyone at the same time and in the same manner. This helps ensure that consistent information is disseminated by a single knowledgeable person."

Clark said the county will soon release a new disclosure notice concerning the action taken by Standard & Poor'slowering the sewer debt's underlying rating to BBB from A. The rating agency also placed the rating on watch with developing implications due to recent negative financial pressures on the sewer system and the potential for these problems to worsen.

Standard & Poor's said its downgrade was a result of last week's material event notice disclosing recent failed debt auctions, rating downgrades that placed variable-rate demand warrants in technical default, and the impact on its massive $5.59 billion swap program.

Moody's Investors Service has not responded to last week's disclosure, but in December affirmed its A3 rating and stable outlook on the sewer debt program.

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