BRADENTON, Fla. - Jefferson County, Ala., officials last week disclosed that they were notified once again about a default for covenant violations on some or all of their $3.2 billion of outstanding sewer warrants, most of which remain in troubled variable- or auction-rate mode.

The county failed to provide the trustee with a required evaluation of revenues available for debt service, and to meet rate covenants, said a Dec. 19 letter from the Bank of New York Mellon, which is the trustee. Instead, the bank said the county sent it a letter stating that it was "not practical or appropriate" to provide the evaluation.

Providing the evaluation most likely would have triggered requirements under bond covenants that sewer rates be increased.

In mid-December, the County Commission voted to suspend an ordinance that required automatic rate increases to pay debt service. At the time, commissioner Shelia Smoot said the county was facing the possibility of having to increase rates more than 300%.

The Bank of New York Mellon and the county's two main bond insurers, Financial Guaranty Insurance Co. and Syncora Guarantee Inc., have filed a suit in federal court asking that a receiver be appointed to oversee the sewer system.

"The trustee has asserted, among other grounds, the existence of certain covenant defaults and events of default described in prior notices of default ... as the basis for the relief sought in the lawsuit," said a material event notice filed by the county last week. "The county has in effect denied the existence of such covenant defaults and events of default in its answer to the complaint filed by the plaintiffs."

According to the trustee, the county received at least two notices before Dec. 19 about defaults under covenants requiring that money be placed into the reserve fund.

The county's notice last week also said that net sewer revenues have not been sufficient to meet debt service requirements "due to the extraordinary increases in interest cost" experienced on the variable- and auction-rate warrants.

The trustee was required to draw $762,657.99 from the debt service reserve fund to pay a portion of the debt service due in December. Before that the trustee drew $492,052.46 from the reserve in September, $25,216,593.88 in October, and $14,447,037.87 in November, according to the event notice.

"Net sewer revenues are expected to continue to be insufficient to meet the debt service obligations," the county's notice said.

The county is negotiating with creditors to try to restructure the sewer debt.

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