CHICAGO - Standard & Poor's stripped a Wisconsin town of its investment grade rating after learning of the risky terms in the municipality's direct placement debt contracts.
The rating agency in a report Sept. 17 lowered its rating of Lawrence, Wis.'s general obligation bonds and promissory notes by five levels to BB-plus from AA and placed the rating on CreditWatch with developing implications.
"The lowered rating reflects our recently becoming aware of the town's existing direct purchase debt, which in our opinion includes permissive events of default within the loan agreements that constitute a significant contingent liability risk," said Standard & Poor's analyst Michael Furla.
The CreditWatch placement reflects the town's current attempt to renegotiate the existing terms.
"It is unclear at this time if management will be successful in achieving these revisions," Furla said.
The rating agency could raise or lower the rating or return the outlook to stable within a 90-day time horizon. The town could win a multi-category upgrade if it successfully renegotiates the terms of the bank loan agreements, removing the permissive events of default that could trigger immediate acceleration of principal and interest.
If the permissive terms remain in the loan agreements, Standard & Poor's said it would likely affirm the current rating and assign a stable outlook. A downgrade could occur if the town's available liquidity were to weaken significantly.
Lawrence is a town of about 4,900 in Brown County about eight miles south of Green Bay.
