BRADENTON, Fla. — Standard & Poor’s Tuesday said it removed Jefferson County, Ala.’s sewer and general obligation warrants from negative credit watch. The agency affirmed its C rating on the sewer warrants with a negative outlook and its B rating on the GOs with a “developing” outlook.
The rating on the sewer warrants applies to Series 1997A, 1997D, 2001A, 2003-B-8, 2003 B-1-A through B-1-E, and 2003C-1 through C-10.
Standard & Poor’s maintains a D rating on Jefferson County’s variable-rate demand Series 2003 B-2 through B-7 sewer revenue refunding warrants due to the sewer system’s failure to make a principal payment on the bank warrants when due on April 1, 2008, in accordance with the standby warrant purchase agreement.
Jefferson County has fixed-, variable-, and auction-rate sewer debt, but the total amount outstanding currently is unclear.
The county refinanced a major portion of its $3.2 billion of sewer warrants into variable- and auction-rate debt in 2002 and 2003. The debt and accompanying swaps sank when the credit markets froze in early 2008.
To date, the county has not restructured the debt and the sewer system cannot support interest payments that rose to penalty rates.
“Volatility associated with the structure and the high debt burden pressure the county’s sewer system,” said a report by Standard & Poor’s analyst James Breeding.
“The negative outlook reflects the potential for further rating deterioration should debt service expenses continue to outpace system revenues,” he wrote. “Although numerous forbearance agreements are currently in place and the county is currently making the required payments on its fixed-rate and auction-rate warrants, in our view, continued high interest rates and mounting deferred payments related to the accelerated variable-rate warrants could increase the already-significant pressure on the sewer system’s financial position.”
In addition to affirming the B rating on the county’s GOs Tuesday, Standard & Poor’s affirmed the B-minus rating on the Jefferson County Public Building Authority lease-revenue warrants; the B rating on the Birmingham-Jefferson Civic Center Authority’s special tax bonds; the BBB ratings on Jefferson County’s limited obligation school warrants secured by sales tax revenues; and the B rating on Jefferson County’s Series 2000 limited obligation school warrants secured by lease payments from the Jefferson County Board of Education to the county.
Standard & Poor’s removed those additional ratings from credit watch and said the outlook is developing, which reflects the potential for the ratings to move in either direction.
“Should the county not be able to restructure its sewer warrants outstanding and it proceeds with a bankruptcy filing, we could lower the rating,” Breeding said. “However, if the county is able to negotiate a restructuring of its sewer debt outstanding, resulting in relative stability and the avoidance of a bankruptcy filing, then we could raise the ratings.”