BRADENTON, Fla. — Standard & Poor’s yesterday reaffirmed its negative CreditWatch designation on all of the non-sewer related debt owed by Jefferson County, Ala., Much of the debt is rated below investment grade and subject to further downgrade.

“The CreditWatch reflects our opinion of the potential for county bankruptcy,” said analyst James Breeding.

The non-sewer debt owed by Alabama’s largest county was downgraded to junk last year as a result of the county’s financially troubled sewer system and the unknown factors that could affect the non-sewer debt in a municipal bankruptcy, analysts have said.

Jefferson County has tried unsuccessfully to restructure the sewer debt and now is depending on the Alabama Legislature to pass bills that would help with the refinancing. The Legislature is in session until May 14.

Some $3.2 billion of troubled sewer debt is rated between C and D by Standard & Poor’s. The agency continued its negative CreditWatch on the sewer debt last month.

While nearly all of the sewer debt is in auction- or variable-rate mode, the county also has $120 million of Series 2001B non-sewer general obligation warrants that also are in variable-rate mode. Standard & Poor’s said its rating on the 2001B warrants recently was downgraded to D.

“In the event of a bankruptcy filing by the county, the entire balance of the 2001B warrants could become due immediately at the request of at least 25% of holders of the warrants, all of which are being held as bank warrants at this time,” according to a report by Breeding.

A month ago, Jefferson County commissioners extended forbearance agreements delaying payments until June 20 to JPMorgan Chase and Bayerische Landesbank Gironzentrale, which hold the variable-rate GO warrants.

Yesterday’s action by Standard & Poor’s applied to the B rating on the county’s remaining fixed-rate GO warrants as well as the B-minus rating on the Jefferson County Public Building Authority’s Series 2006 lease-revenue warrants, the B rating on the Birmingham-Jefferson Civic Center Authority’s special tax bonds Series 2002C and 2005A, and the BBB ratings on Jefferson County’s limited obligation school warrants secured by a special one-cent sales tax.

“Though sales tax revenues are pledged solely to the repayment of the [school] warrants, we believe there is uncertainty regarding a potential short-term disruption in the flow of payments should the county file for bankruptcy,” Breeding said.

For fiscal 2009, sales tax revenues are down by about 8%, but Standard & Poor’s said it expects debt service coverage levels to remain above 1.0 times.

Standard & Poor’s also maintained its CreditWatch designation on the B rating on Jefferson County’s Series 2000 limited obligation school warrants, which are secured by lease payments from the Jefferson County Board of Education.

Jefferson County’s financial position has worsened since January, when a local judge struck down an occupational tax providing significant revenues supporting the county’s general fund.

The state Legislature is considering a bill reauthorizing the tax. However, the county has been preparing budget cuts even to the point of eliminating zoning regulation and building inspections.

On Monday, the county’s largest sewer bond insurer, Syncora Guarantee Inc., said that it may temporarily suspend claims payments April 26 if it does not successfully complete a restructuring.

The county has called upon its insurance policy with Syncora to make $133.5 million in principal payments and $27.4 million in interest payments on the county’s sewer warrants.

Syncora insures $1.1 billion of the sewer debt.

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