Bradley moves bonds to new bank

CLEVELAND, Tenn. -- Bradley County commissioners agreed Monday to switch debt from two bond issues, totaling $20 million, from one bank to another.

The measure is called a novation agreement, explained financial advisor Joe Ayers, with Morgan Keegan. It is a means of substituting a new obligation for an old debt.

He said the bond rating of the original company holding the debt has declined to "below investment grade."

Ambac Financial Group Inc., headquartered in New York City, holds two issues, which represent about a quarter of the total county's $80 million bond debt. But earlier this year, Standard and Poor's Rating Service dropped Ambac's rating from BBB, a medium grade, to CC, which the Web site Money-zine.com calls "speculative."

That means bonds of Bradley County and other local governments are held by a company that could go bankrupt, Mr. Ayers said.

He recommended that Bradley County include itself in the novation agreement now being negotiated between Ambac and Deutsche Bank, a German international investment bank.

He said Deutsche Bank is AA rated and "one of the largest banks in the world," adding that there's no cost for the switch and the county can terminate the contract.

County Commissioner Lisa Stanbery noted that Ambac's lower rating came earlier this year. She asked Mr. Ayers why it took so long to make the recommendation and how Deutsche Bank will "make their money back."

The debt swap still might not take place because it depends on continuing negotiations between Ambac and Deutsche Bank, Mr. Ayers explained.