With an upgrade in hand, Jefferson County, Alabama, plans to refund nearly $140 million of general obligation warrants for debt service savings.

The fixed-rate, tax-exempt deal prices Wednesday, and will be the county’s second foray into the bond market since emerging from bankruptcy Dec. 3, 2013. The bankruptcy and a related appeal are disclosed in the preliminary official statement.

Jefferson County, Alabama, County County Commission President Jimmie Stephens.
“The pending appeal is one factor in the total mix of information that investors will undoubtedly consider," said Jefferson County Commission President Jimmie Stephens.


The new debt will be structured as $112.5 million of Series A GO refunding warrants and $26.9 million of Series B delayed-delivery GOs to be delivered around Sept. 17. The warrants are secured by the county’s full faith and credit.

Proceeds of the Series A warrants will refund the county's outstanding 2003A and 2004A GOs, and 2006 public building authority lease revenue warrants. The Series B debt will partially refund 2013A and 2013C GO warrants. Both refundings will be within existing maturities.

The county estimates the deal will achieve combined present value savings in the range of $10 million to $11 million, according to County Commission President Jimmie Stephens.

“We believe the most prudent thing to do is use the savings to reduce our debt service cost during the life of the warrants,” he said. “We will not take any of the savings up front.”

Citing the county’s “material” improvement in reserves and spending flexibility, Fitch Ratings upgraded the county’s issuer default rating to AA-minus from A, and assigned the AA-minus rating to the 2018 refunding warrants. The outlook is stable.

Fitch said its rating also continues to consider the county's inability to raise revenues independently due to the lack of home rule power, and the county’s exposure to its historically troubled sewer system, which is rated BB-plus.

Fitch’s upgrade also reflects the county’s fully funded pension liability, new general fund revenue collections as a result of last year’s sales tax warrant refunding, and rapid amortization of debt, Stephens said, adding that the county has worked hard to improve its fiscal health.

Moody's Investors Service assigned an A3 rating to the 2018 refunding warrants, while S&P Global Ratings assigned an AA-minus rating. Both said the outlook is stable.

Last year, Jefferson County issued $339 million of debt to refund outstanding education revenue warrants with a new 1% local sales tax.

The 2017 deal, the county’s first bond sale since exiting bankruptcy, received more than $1.7 billion of orders and sold with an all-in, true-interest cost of 3.38%. The county had anticipated a TIC of 3.6%.

The sales tax warrants priced to yield 1.5% with a 5% coupon in 2020, 3.05% with a 5% coupon in 2031, and 3.78% with a 4% coupon in 2042. The spread was 38 basis points above the benchmark in 2020, 69 basis points above in 2031, and 104 basis points above in 2042.

Wednesday’s issuance, like the 2017 deal, will come to market while an appeal of the county’s bankruptcy plan of adjustment is pending before the 11th Circuit Court of Appeals in Atlanta. The appeal concerns language in the bankruptcy plan pertaining to the county’s sewer warrants and planned rate increases to support the sewer debt.

The appellate court heard oral arguments on Dec. 16, 2016 and has yet to rule in the case. Its decision could validate the plan or send it back to the bankruptcy court for revision.

Stephens said he did not expect that investors participating in Wednesday’s sale would demand a penalty.

“The pending appeal is one factor in the total mix of information that investors will undoubtedly consider,” he said. “We don’t believe it should have any significant impact on the rates we receive.”

Public Resources Advisory Group and Terminus Municipal Advisors LLC are co-financial advisors to the county.

Raymond James is the book-runner and a lead manager along with Stifel, Nicolaus & Co.

Co-managers are Citi, Drexel Hamilton LLC, Piper Jaffray and Securities Capital Corp.

Balch & Bingham LLP is bond counsel. Bradley Arant Boult Cummings LLP is disclosure counsel. Waldrep, Stewart & Kendrick LLC is underwriters’ counsel.

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