Jefferson County, Alabama intends to put up for sale sewer warrants worth USD 1.7 billion next week. The offering of sewer system securities, which are equivalent to bonds, came after the county sought bankruptcy protection two years ago. Jefferson County is also in arrears of its sewer debt worth USD 3.1 billion.

Credit rating companies did not agree on the rating to give Jefferson County's proposed debt sale. Standard & Poor has given the bonds an investment grade rating. The ratings firm said the county's decision to increase its sewer rates to enable it to cover its financial obligations was the reason behind their decision. However, the sewer warrants were given a "junk" rating by Fitch Ratings Inc. Fitch said the legal hurdles have the potential to overturn the county's higher sewer rates. Meanwhile, Moody's Investors Service Inc said Jefferson County's debt had characteristics that would warrant a noninvestment grade rating.

Investors told the Wall Street Journal that the new debt could bring up to 6.5% in yields. This is considered a high premium compared to the 4.1% rate of a highly-rated municipal bonds index which was monitored by Thomson Reuters. Industry observers say the yield could lure pension funds and hedge funds to buy even if they don't usually purchase municipal debts.

Belle Haven Investments Chief Executive Matthew Dalton told the WSJ, "You always hear the threat that if you default on your debt, the market will freeze you out. This deal washes that away." Dalton's firm oversees municipal bonds worth USD 1.8 billion. He is mulling whether to purchase Jefferson County's debt or not.

According to the WSJ report, analysts had said that it is not common for an issuer to sell bonds while it is still under bankruptcy protection. Jefferson County intends to use the proceeds from the bond sale to pay its debts to insurers, hedge funds and banks, the report said.