BRADENTON, Fla. — Standard & Poor’s on Friday slashed the rating on Jefferson County’s sole investment-grade credit to junk in response to the government’s filing for bankruptcy.
In addition, Moody’s Investors Service along with S&P initiated reviews to potentially downgrade most or all of the Alabama county’s credits to the bottom of their junk-rating scales.
Jefferson County filed a Chapter 9 petition last Wednesday after failing to reach a settlement with creditors to restructure its $3.14 billion of defaulted variable- and auction-rate sewer warrants.
It is the largest municipal bankruptcy in U.S. history, and includes a total of $4.2 billion of debt.
The county’s $814 million of outstanding limited-obligation school warrants were dropped five notches to B from BBB-minus by S&P, which placed the lower rating on CreditWatch with developing implications due to uncertainty about whether the county would continue making debt-service payments, according to analyst Brian Marshall.
The agency said it does not expect the bankruptcy to affect payments, and noted that the warrants are secured by a dedicated countywide special-education sales tax.
However, “the county’s willingness to continue these scheduled payments is uncertain,” Marshall said. The rating could be revised upward if payments continue uninterrupted and the county clarifies its intent to continue to make payments, he added.
Standard & Poor’s placed its C ratings on the county’s sewer warrants on CreditWatch with negative implications, and lowered the general obligation warrants to C from B. It also dropped the Jefferson County Public Building Authority’s lease-revenue warrants to C from B-minus, and downgraded to C from B the Series 2000 limited-obligation school warrants secured by lease payments from the Jefferson County Board of Education.
Moody’s on Friday said it began reviewing all of Jefferson County’s ratings in light of the bankruptcy filing.
“Moody’s review will evaluate the impact of the filing on the credit quality of the various securities should the court approve the petition,” analyst Christopher Coviello said.
The action by Moody’s applies to the Caa3 rating on the sewer revenue warrants, the Caa1 rating on $200 million of outstanding general obligation warrants, and the Caa2 on $83.64 million of lease-revenue warrants.
The review also includes the B3 ratings on the school warrants and the $32.92 million of special-tax bonds issued by the Birmingham-Jefferson Civic Center Authority, which are secured by various countywide excise taxes and county revenues.