BRADENTON, Fla. - Standard & Poor's upgraded Jefferson County, Ala.'s limited-obligation school warrants two notches to A-minus from BBB.
The upgrade affected about $449.8 million of Series 2014A fixed-rate warrants, $105.5 million of Series 2005A auction-rate warrants, and $110.8 million of Series 2005B warrants as of Sept. 30, 2014.
The outlook is stable, S&P said in an April 29 report.
"The upgrade reflects our opinion of the gradually decreasing ratio of variable-rate debt to parity debt outstanding, which we expect to decrease further as officials continue to use excess tax proceeds for the early redemption of the series 2005B warrants," said analyst Jim Tchou.
The higher rating also reflects S&P's opinion about the gradual strengthening of maximum annual debt service coverage, which is expected as the debt service schedule decreases after fiscal 2017, and pledged revenue growth, he said.
The debt is secured by the proceeds of a countywide special education 1% sales tax dedicated solely to the repayment of the warrants. The county was required to use excess revenue from the tax to redeem the warrants early, though redemption of the 2005A or 2005B warrants is at the county's sole discretion, according to S&P.
The county's Chapter 9 bankruptcy plan of adjustment, confirmed by the court on Nov. 22, 2013, requires the county to allocate all excess tax proceeds to the series 2005B warrants, which are now being held through maturity by FMS Wertmanagement AöR, an affiliate of Depfa Bank PLC.
Between fiscal 2013 and 2015, the county redeemed $78.3 million of 2005B warrants.
S&P said pledged revenue increased by 16.5% over the past five fiscal years to $97.2 million in fiscal 2014 as the county's economy recovers from the national recession. The increased revenue provided an estimated 1.28 times coverage of maximum debt service.
County officials project 4.4% growth in pledged revenue based on collections through the first six months of fiscal 2015 and 3% growth in fiscal 2016.
"Based on our most recent U.S. state and local government credit conditions forecast, we believe the 2015 outlook for the region is bright with continued job creation across several sectors and strengthening consumer sentiment," Tchou said.
"While the overall picture is positive, we note the federal government continues to trim spending in the region," he said. "Based on our projections, federal spending will likely continue to decrease over the next few years."
Jefferson County filed for bankruptcy in November 2011, and exited two years later. The bankruptcy exit plan is being appealed.
