NEW YORK Feb 8 Standard & Poor's Ratings
Services cut on Friday the underlying ratings on bankrupt
Jefferson County, Alabama, to D from C after the decision by the
creditors' trustee, the Bank of New York Mellon, to
suspend payment on Feb. 1.
The rating agency added that bonds affected are series
1997A, 2001A, 2003-B-8, 2003 B-1-A through series 2003 B-1-E,
and series 2003 C-1 through 2003 C-10 sewer system revenue
Moody's Investors Service, which rates Jefferson County
sewer warrants at Caa3 negative, said on Friday that the
suspension of payments exposes the warrant holders to greater
The ratings agency plans to review the implication of the
suspended payments on the current ratings.
Out of the total $4.2 billion debt in Jefferson County's
bankruptcy - the largest in the U.S. history - the biggest chunk
is represented by $3.14 billion in sewer warrants.
When re-marketing this debt failed during the financial
crisis, the interest rate that Jefferson County had to pay on
these warrants reset to higher penalty rates, Moody's said.
The county defaulted on those warrants first and on other
debt, including its fixed rate General Obligation warrants,
Until now, holders of certain bank warrants, "which are on
an accelerated repayment schedule and which had principal
payments overdue, had consented to the trustee's making
distributions on the Sewer Warrants as if no payment defaults
had occurred on the bank warrants," said Moody's in its note.
Last week, the trustee revealed that some holders of the
bank warrants are no longer willing to consent to the trustee
making distributions on the Sewer Warrants as if no payment
defaults had occurred on the bank warrants. The result is the
Earlier this week, the bank of New York Mellon Corp, asked
the U.S. bankruptcy court to allow an accelerated payment. The
preliminary hearing is set for March 7.