BRADENTON, Fla. - Moody's Investors Service withdrew its Ca ratings on Jefferson County, Ala.'s sewer revenue warrants as a result of the county's exit from bankruptcy.
The county closed on $1.78 billion of new sewer revenue warrants in December, and used the proceeds to refund and write down $3.2 billion of outstanding sewer debt, "imposing losses on prior warrant holders," Moody's said Jan. 9. The warrants are similar to bonds.
The new debt refunded the county's 1997A, 2001A, 2002A and C, and 2003B and C sewer warrants.
The county had been in default on the sewer debt since 2008. Most were outstanding as variable- and auction-rate securities.
Moody's said it calculated a recovery rate of 54% for previous warrant holders, which is consistent with the 35% to 65% recovery range indicated by the Ca rating category.
"Our recovery calculation takes into consideration the amount recovered or paid to creditors, not including payments made by bond insurers, divided by principal and accrued interest on the old sewer warrants," said analyst Christopher Coviello. "In this case, we took the distribution to creditors of $1.7 billion and divided it by the principal and interest owed of $3.2 billion, for an ultimate recovery of 54%."
The biggest loss on the refunded debt was to JPMorgan, the county's largest creditor, which agreed to write down more than $840 million of the $1.2 billion it owned. That allowed most other investors to receive higher returns between 60% and 80% with the lower amount going to those who chose to keep the insured debt rather than take a higher amount in cash.
Moody's was not asked to rate the sewer warrant deal in December but published a special comment before pricing that said the new debt should be rated in the B or Ba range, reflecting "substantial-to-high credit risk."
The agency said that the county's other outstanding debt is under review for possible upgrade, including the general obligation, limited obligation school, and building authority lease warrants as well as the Birmingham-Jefferson Civic Center Authority's special tax bonds.
The review is focused on the forward-looking credit quality of each type of debt post-bankruptcy, Moody's said.
