Jefferson overlaid these floating positions with a series of interest rate swaps worth $5.4 billion. These contracts paid the County a percentage of one-month Libor and were aimed at synthetically fixing its interest rate payments - a strategy known as variable-rate-swapped-to-fixed-rate. But with the municipality having to pay huge penalty fees on outstanding ARS paper - the result of failed auctions and multiple downgrades - these hedges proved woefully inadequate, leaving the County facing hundreds of millions of dollars in losses.

CR now points to this BusinessWeek article, which suggests that the end is nigh:

Running out of options after months of talks with bondholders and insurers, Jefferson County commissioners voted earlier this week to let the governor negotiate directly with creditors. They canceled plans for a public referendum set for Nov. 4 on whether to file for bankruptcy. A decision not to make the interest payment would place the county in default and put it one step closer to filing bankruptcy over a $3.2 billion bill...

The county has a month's grace to renegotiate - then the hammer comes down.

This NYT article looks at the bigger problem of poor disclosure in the muni market. But it doesn't mention the fact that muni bonds have been historically underrated by the CRAs compared to corporate bonds.