BRADENTON, Fla. - Moody's Investors Service late yesterday downgraded Jefferson County, Ala.'s $3.2 billion sewer revenue warrants to Caa3 from B3 in response to the continuing financial crisis the county is under because most of the debt is in variable- and auction-rate securities tied to swaps.

"The downgrade of the sewer revenue debt reflects the heightened probability of default on the county's sewer obligations within the next year and a lack of a concrete plan to avoid such default," said a report by Moody's analyst Geordie Thompson.

Moody's also downgraded the county's other credit ratings by lowering $270 million in outstanding general obligation debt to Baa1 from Aa2, lowering $86.7 million in outstanding lease revenue warrants to Baa2 from Aa3, and downgrading $996.8 million in limited obligation school warrants to Baa2 from A1.

The Birmingham-Jefferson Civic Center Authority's debt also was affected. Moody's lowered the rating on $20.3 million in occupational tax bonds to Baa1 from Aa3, and the rating on $40.86 million in beverage and lodging-backed debt was lowered to Baa2 from A1.

"The downgrades of the non-sewer debt reflect the risk that the financial crisis that has embroiled the sewer system may affect the credit strength of the county's other obligations, particularly given the uncertainties of the effects of a possible bankruptcy filing, should the county pursue that option," Thompson said.

Two weeks ago, County Commission president Bettye Fine Collins called a local press conference and gave a brief outline of a strategy to restructure the sewer debt program by using excess sales tax revenues from a school bond issue to supplement debt service revenues on the water and sewer debt. That plan would require legislative approval. Collins reportedly said the county would not consider raising sewer rates.

On March 6, Standard & Poor's slashed the county's sewer debt rating to CCC from B. The agency also cut most of the county's other ratings and placed them on credit watch negative out of concern that the county might seek protection through bankruptcy.

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