Jan. 18, 2008

King County’s investment pool’s rating temporarily suspended by S&P: Rating action does not affect county’s bond rating

Standard & Poor's (S&P) announced that King County's investment pool rating will be temporarily suspended as the pool continues to seek recovery solutions on four impaired commercial paper investments that comprise five percent of the pool's assets. Additionally, S&P has confirmed that this rating action will have no impact on King County's exemplary AAA bond rating.

"The pool rating is simply suspended until a restructuring solution is worked out on Mainsail and the three other impaired investments," stated King County Executive Ron Sims. "The investment pool rating does not in any way impact the county's triple AAA bond rating. It is the bond rating, not the pool rating, which keeps debt service costs as low as possible for taxpayers."

"We now know that the financial exposure on the impaired investments is limited and manageable," added Sims. "We fully expect to have recovery solutions worked out on each of our impaired investments in the near future and that should enable us to have our investment pool rating restored once again to S&P's highest level."

S&P first rated the county's investment pool in 2005 and granted the pool its highest rating of AAAf. The pool has continued to earn this highest rating in 2006 and again in 2007. Standard & Poor's took the temporary action to suspend their rating of the pool pending the outcome of enforcement events associated with each impaired investment.

The four impaired commercial paper assets are the SIV portfolio (formerly known as Cheyne Finance LLC), Mainsail II LLC, Rhinebridge LLC and Victoria Finance LLC. At the time of the county's acquisition of these assets, S&P had assigned each one its very highest short term rating of A-1+. The A-1+ rating, according to S&P's rating criteria, indicates that the asset's "capacity to meet its financial commitment on these obligations is extremely strong."

Each impaired asset is currently part of an "enforcement event" in which a trustee takes over and determines the best way to liquidate assets or refinance the portfolio in order to maximize value for creditors. Enforcement events are specifically designed to protect the interests of senior creditors, such as the county. There are no financial impacts to report at this time because the impacts cannot be determined until the final outcome of each enforcement event.

The King County investment pool invests cash reserves for all county agencies and approximately 100 special districts and other public entities such as fire, school, sewer and water districts and other public authorities. It is one of the largest investment pools in the State of Washington with an asset balance of about $4.3 billion as of December 31, 2007. County agencies comprise 40 percent of the pool and other special districts make up the remaining 60 percent.

Due to unprecedented volatility in global credit markets that erupted in August 2007, the county halted all purchases of commercial paper at that time. The investment pool has substantially reduced its exposure in commercial paper from 25 percent of the portfolio in August 2007 to about 5 percent as of January 2008. During this six month period, the pool has received full payments on 23 holdings of commercial paper totaling $806 million. Of the $232 million of commercial paper remaining in the pool, $207 million is associated with four impaired investments and $25 million is for one highly rated investment that matures on January 25, 2008.