Thursday night Jefferson County released the second “material event notice” in as many weeks regarding its sewer debt crisis. The news isn’t good.

According to this release, recent downgrades by ratings agencies could soon cause the county’s interest rate swaps to terminate, an event that could cost the county hundreds of millions of dollars. The only way to avoid such terminations is for the county to produce $184 million in insurance or collateral by March 7. According to the notice, the county does not have the revenue or cash on hand to provide such collateral.

The county writes in the notice:

“As of the date of this notice, the County can offer no assurances that it can obtain the required insurance or post the necessary eligible collateral to avoid an Additional Termination Event under the Swap Agreements. If an Additional Termination Event occurs, the respective counterparties will have the right to terminate the respective swap transactions upon notice to the County, in which event the County would be obligated to pay the resulting termination payment in accordance with the provisions of the Swap Agreements. The aggregate amount of the termination payments that would be due is approximately $184 million as of February 27, 2008.”

What’s more, interest rates on variable rate warrants continue to rise and auction rate warrants continue to come due. As the auction rate warrants mature, and the county still cannot pay or find buyers for new bond debt to refinance the old.

“The County has experienced a total of eight failed auctions as of February 27, 2008 with respect to $869,450,000 aggregate principal amount of Auction Rate Warrants,” the county said in the event notice.
The county says that, while it continues to look for solutions to the problems, it can promise none.

More to come as we translate from the original Greek.

Or you can find the whole document here.