Moody's drops Alabama county's GO and other ratings

MIAMI, Sept 25 (Reuters) - Moody's Investor Service, acting after Alabama's Jefferson County missed a bank warrants payment, on Thursday cut to "B3" from "Ba3" its rating on $270 million of the county's general obligation debt.

The credit-ratings group also reduced ratings on more than $1.1 billion of other tax-free debt issued by the county, which is negotiating with creditors against a Tuesday deadline on restructuring $3.2 billion of troubled sewer-system debt.

The county that includes Birmingham, Alabama's biggest city, has threatened to file what would be America's biggest municipal bankruptcy since 1994, if a restructuring deal is not secured.

"The downgrade of the rating on the county's general obligation debt reflects the county's failure to make a principal payment on bank bonds held by liquidity providers due Sept. 15, 2008, constituting an event of default," Moody's said in a news release.

In addition to downgrading the GO debt, Moody's analysts also cut to "Caa1" from "B1" the rating on $86.7 million of outstanding lease revenue warrants issued through the Jefferson County Public Building Authority.

The analysts also downgraded to "B3" from "B1" Moody's rating $996.8 million in limited obligation school warrants secured by sales taxes. The cuts also included one to "B3" from "Ba3" the rating on $20.3 million in special tax bonds issued by the Birmingham-Jefferson Civic Center Authority.

Moody's said Jefferson County was at risk of filing for Chapter 9 bankruptcy and that the crisis over the sewer debt clouds the outlook for Jefferson County's finances.

"Given the lack of history of municipal bankruptcy, Moody's is unable to determine what county revenues, assets and debt obligations could be affected by bankruptcy proceedings and that a bankruptcy filing could weaken the county's ability to meet these other debt obligations," the analysts said.

On Wednesday, Standard & Poor's lowered its underlying rating on Jefferson County's series 2001B general obligation warrants by seven notches to "D" from "B" and pulled its rating from the firm's Credit Watch list with negative implications. (Reporting by Michael Connor; Editing by Diane Craft)