BRADENTON, Fla. - Moody's Investors Service on Monday downgraded to speculative the short-term rating on $442 million of Atlanta's variable-rate demand sewer obligations due to the expiration of a standby purchase agreement from Dexia Credit Local.

The downgrade applied to $335.64 million of Series 2001B and $105.71 million of Series 2001C VRDOs, which were rated VMIG-1.

Since the VRDOs are bank bonds, and no longer being remarketed, the downgrade came as a surprise to Carmen Pigler, Atlanta's chief of debt and investments, who said she believed the rating would simply be withdrawn.

"Typically, they remove the rating because the bonds are in the bank, they are not being marketed so there is no reason for them to carry a variable-rate rating," Pigler said yesterday. "For one thing, those are the bonds we're going to convert to fixed-rate bonds."

About two weeks ago, Moody's affirmed its underlying long-term rating of Baa1 and stable outlook on Atlanta's $2.47 billion of outstanding sewer debt.

The affirmation came while assigning the same rating to yesterday's planned sale of $600 million of new and refunding sewer debt.

The deal was increased in size to $750 million, according to pricing information available yesterday afternoon on Thomson Municipal Market Monitor.

The city wants to use the refunding to take out commercial paper, and the new money for ongoing projects related to its $4 billion water and sewer program.

In a rating report in advance of this week's sale, Moody's noted that the city planned to refund the 2001 bank bonds in August with "fixed-rate long-term revenue bonds, in advance of the first semiannual installment payment." The agency also noted that the Series 2001 bank-held bonds are subject to a bank rate of Prime plus 100 basis points.

Moody's is the only agency that carried a short-term rating on the bonds, Pigler said, describing Monday's action by Moody's as a "non-event."

In addition to Moody's, Fitch Ratings and Standard & Poor's recognized in their reports in advance of this week's sale that the liquidity support for the Series 2001 bonds had expired.

They also noted the city's plans to refund the VRDOs in advance of the first accelerated payment date in October.

The city's sewer bonds are rated A by Standard & Poor's and BBB-plus by Fitch Ratings.

JPMorgan yesterday priced bonds maturing from 2010 through 2029 with term bonds in 2034 and 2039.

Yields range from 3.15% with a 4% coupon in 2011 to 6.38% with a 6.25% coupon in 2039. Bonds maturing in 2010 were decided via sealed bid. The bonds are callable at par in 2019.

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