ATLANTA -- Standard & Poor's Corp. placed its A-minus rating on West Virginia's School Building Authority on CreditWatch with negative implications late Monday. following a state court ruling that prohibits the authority from issuing debt without voter approval.

The rating agency also withdrew its A-minus rating assigned to a $338 million issue that the authority had planned to sell but postponed because of court action.

Last Friday, the Kanawah Circuit Court ruled that the state Legislature had violated West Virginia's constitution in authorizing the issuance of annual appropriation debt without a voter referendum.

On Monday, the School Building Authority appealed the ruling to the state Supreme Court. Yesterday, the state's high court agreed to hear the case and set a hearing date for next Tuesday.

"What this comes down to is a constitutional issue in West Virginia what is debt and what has to go to voters in order to be issued," Steve Nelli, a director in the rating agency's lease group, said yesterday.

"Given these unresolved questions -- and that we can't take a position on what West Virginia's courts might finally decide -- we felt we had to put the bonds on CreditWatch to alert bondholders," Nelli said. "We will be looking at specific direction from the court as to what is the state's obligation to meet contractual obligations before we would lift the CreditWatch."

Clacy Williams, the authority's executive director, said he was "pleased that Standard & Poor's didn't take worse action."

"They could have downgraded us, but are instead taking a wait-and-see position," he said.

According to Standard & Poor's, about $100 million of the School Building Authority's $330 million of outstanding debt is uninsured and carries the A-minus rating. The remainder is rated AAA because it is insured by Municipal Bond Investors Assurance Corp. Nelli said Standard & Poor's cannot say whether an affirmation by West Virginia's high court of the lower court ruling would automatically lead to a downgrade.

"If the court rules that not only that pending issue can't be sold but also that past [school authority] issues can't be funded by the Legislature, then you have a potential default situation," Nelli said. "But this is the worst case. There is a lot of ground in between."

Nelli said, however, that the ruling does not put into jeapordy the BBB-plus rating of the West Virginia Water Development Authority, which is also secured by annual legislative appropriations.

In a prepared release, Standard & Poor's additionally took pains to affirm the strength of West Virginia's economy and the importance of the School Building Authority's program for the state.

"The underlying credit fundamentals of the authority's bonds -- including the creditworthiness of the state and the importance of the program -- remain strong and has resulted in a positive rating outlook before the current court decision," Standard & Poor's said.

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