BRADENTON, Fla. - For the third time in two weeks, Jefferson County, Ala.'s $3.2 billion in sewer debt has been downgraded by Standard & Poor's - this time to CCC from B.

The rating agency late Thursday also cut most of the county's other ratings and placed them on credit watch negative. Those included lowering the county's general obligation rating to A from AA, lowering the sales tax bond rating to A from A-plus, downgrading lease revenue warrants to A-minus from AA-minus, and cutting short-term ratings to A1 from A1-plus.

"The action was taken primarily due to the fact that bankruptcy is still being discussed by county officials," said analyst Sussan Corson. "They haven't said they intend to file, but no course of action has been ruled out so it's unclear how the revenues of the rest of the county would be affected by bankruptcy."

Analysts said they need more clarity about how the county hopes to resolve its plight.

The sewer debt rating drop to CCC, with a developing credit watch, was largely the result of Jefferson County's own disclosure late Wednesday that it will not post collateral or insurance to avoid the termination of 13 swaps, said analyst Peter Murphy, who noted that the rating level is uncommon for municipal debt.

The material event notice said the swap counterparties - Bank of America NA, Bear Stearns Capital Markets Inc., JPMorgan Chase Bank, and Lehman Brothers Special Financing Inc. - had been notified of the county's intentions. The swaps cover a notional amount of $5.4 billion.

Members of the county's finance team were in New York earlier this week meeting with liquidity providers, swap counterparties, and bond insurers, Patrick Darby, a partner in the Birmingham office of Bradley Arant Rose & White LLP, said yesterday. Darby's firm is one of several hired to represent the county as it tries to resolve the current difficulties brought about by bond insurer downgrades and turmoil in the floating-rate markets.

The county is attempting to obtain "a consensual settlement with our creditors that involves some restructuring of the debt," said Darby, whose specialty is representing debtors and creditors in complex business reorganizations, including bankruptcies and out-of-court workouts and restructurings.

There is no time frame for potential agreements to be made, Darby said, adding, "I think these things will take some time but I don't know how long."

Darby also said the county is reviewing its options and those could include filing Chapter 9 bankruptcy, but that is not under active consideration.

"We're reserving our rights and leaving all options on the table," he said.

Rating downgrades on the county's $3.2 billion sewer system triggered the requirement for the county to either post collateral or obtain insurance to avoid termination.

Jefferson County has until Friday to post collateral or insurance. However, Wednesday's disclosure said the counterparties could terminate their swap transactions and the county would be obligated to pay a termination fee, calculated at approximately $184 million as of Feb. 27. The notice did not say how the county intends to pay the termination fee if the counterparties exercise their right to terminate the swaps.

Jefferson County officials are dealing with troubles related to their massive and highly leveraged sewer debt program, which includes $2.2 billion of outstanding auction-rate warrants and about $1 billion variable-rate warrants. As of Feb. 27, the county had experienced failed auctions on $869.5 million of auction-rate warrants and higher interest rate resets on variable-rate warrants largely because of bond insurance company downgrades.

Moody's Investors Service on Tuesday lowered the sewer debt rating to B3 from Baa and placed Jefferson County's other credit ratings on review for possible downgrade.

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