BRADENTON, Fla. - Standard & Poor's Monday continued its negative watch on Jefferson County, Ala.'s outstanding debt, though not including the county's troubled sewer bonds.
"The CreditWatch reflects our opinion of the potential for county bankruptcy," said a report by analyst James Breeding.
Continuation of the negative watch applies to the B rating on the county's general obligation warrants. It does not apply to the D rating on approximately $120 million of Series 2001B variable-rate GO warrants, which are held by banks.
In addition to the GO debt, the negative watch applies to the B-minus rating on Series 2006 Jefferson County Public Building Authority lease revenue warrants, the B rating on Series 2002C and 2005A Birmingham-Jefferson Civic Center Authority special tax bonds, the BBB rating on Series 2004A limited-obligation sales tax revenue school warrants, and the B rating on Series 2000 limited-obligation school warrants.
"In addition to the concerns related to a potential bankruptcy filing due to the significant stress related to the sewer system's debt, the county's general fund has come under additional stress due to the potential loss of occupational tax revenues," Breeding said.
A circuit court judge in January struck down the occupational tax that accounts for one-third of county's general fund revenues.
The Alabama Legislature failed to reauthorize the tax and the case is now heading to the state Supreme Court on appeal. Until then tax proceeds cannot be spent, even though they are still being collected.
"Without the tax proceeds, the county could deplete its reserves and run out of cash before the fiscal year-end," Breeding said. "However, we understand that management has made substantial budget cuts and additional cuts are likely."
While sales tax revenues are pledged solely to the repayment of the 2004 school warrants, Breeding said there is uncertainty regarding a potential short-term disruption in the flow of payments should the county file for bankruptcy.
County commissioners last week imposed nearly $32 million in across-the-board budget cuts because of losing the occupational tax. But the county's sheriff obtained a temporary restraining order preventing further cuts out of safety concerns.
A full hearing is set for Monday, July 13, on whether the injunction should be permanent.
Meanwhile, the status of the most recent payments due on the county's troubled $3.2 billion of variable- and auction-rate sewer debt is unknown. A quarterly payment of $71 million on accelerated principal for its sewer debt was due July 1.
No county officials could be reached to find out if the payment was made and it is believed that no formal forbearance agreements remain in place.
The July 1 payment was the first that came due since bond insurer Syncora Guarantee Inc. in late April announced that it would stop claims payments while it attempted to reduce its exposure to structured finance and meet minimum capital requirements. Jefferson County had depended heavily on Syncora as one of two major insurers of its sewer debt.
Syncora is in negotiations with a fund attempting to buy the insurer's troubled mortgage bonds. The latest in a series of delayed deadlines for a tender offer has now been extended until Friday, according to Andy Mais, a spokesman with the New York Insurance Department, which regulates Syncora and other New York-based insurers.
