Sept 3, 2008

Fitch signals positive outlook on King County bonds

Investment pool recovers impaired investments

Fitch Ratings, a national credit rating agency, removed its "negative watch" status on King County's previously issued general obligation bonds. This action reasserts the county's exemplary bond rating after the county recently agreed to settlement on two impaired investments in the county's investment pool.

Fitch placed the county's bonds on a negative watch in October 2007 due to uncertainties about the impact of four impaired commercial paper investments in the County's investment pool totaling $207 million or about 5 percent of the pool's holdings.

Since last October, two of the four impaired assets totaling $100 million have successfully been restructured. The County was able to recover $62 million or 62 percent of its original investment on behalf of all County funds and the 100 members of the investment pool including school, fire, sewer, water, and hospital districts as well as other public authorities.

The two remaining impaired assets total $107 million and are expected to be restructured later this year. The County is estimating it will recover 40 to 50 percent of these funds subject to changing market conditions. The County's investment pool totals $4 billion and distributed over $200 million in earnings in 2007 and $87 million through July 2008.

Fitch points out the actual and estimated losses attributable to the four impaired investments are "absorbable within financial parameters consistent with [Fitch's] high ratings." Fitch further compliments the County's financial management indicating that: "Management is excellent, as evidenced by sound fund balance levels, adherence to strong council-adopted financial management policies, and a low debt burden."

Bond rating are important because they reduce the borrowing costs to King County and ultimately to taxpayers. All three credit rating agencies (Fitch, Standard & Poor's and Moody's) continue to assign their highest "AAA' ratings to the county's previously issued Unlimited General Obligation Bonds (UTGO's) which include all voter approved bonds.