Jefferson County commissioners expect creditors holding about $3 billion of its debt to offer a restructuring proposal before a special meeting tomorrow, President David Carrington said.
Alabama officials told Carrington to expect a counteroffer to a county plan to repay about $2 billion and increase sewer rates about 8 percent for the next three years, he said. The administration of Governor Robert Bentley has been trying to broker a deal after a refinancing of debt issued to rebuild the county’s sewer system failed.
County officials said they may file the largest municipal bankruptcy in U.S. history if creditors including JPMorgan Chase & Co. (JPM) didn’t make a counteroffer.
“If we don’t extend the standstill, I wouldn’t be surprised if the majority of this commission voted for Chapter 9,” Carrington said, referring to the law that protects municipalities from creditors during reorganization. The earliest the county may seek court protection under Chapter 9 of the U.S. bankruptcy code is early Saturday, when a 30-day negotiating period ends, Carrington said.
Behind Closed Doors
The county likely will enter a closed session to review the counteroffer with its lawyers after convening a special meeting at 2 p.m. New York time tomorrow, he said.
The commission may seek to extend the negotiating period by seven days to review the proposal, Carrington said. Creditors must agree to the extension.
Susan Quick, a spokeswoman for JPMorgan, the county’s biggest creditor, didn’t immediately respond to an e-mail seeking comment on the situation.
JPMorgan will offer concessions “disproportionate” to those from other banks that hold the sewer bonds, said John Young, a court-appointed receiver who is facilitating the creditors’ response.
“They’re giving significantly more, per unit of holding,” Young said in a telephone interview.
Companies that insured Jefferson’s bonds, Syncora Guarantee Inc., Financial Guaranty Insurance Co. and Assured Guaranty Ltd. (AGO) also will have to make some payments to the banks, Young said. How much they pay will be dictated by the financial health of each. Financial Guaranty’s parent, New York-based FGIC Corp., sought bankruptcy court protection in August 2010.
The creditors are working on their proposal, Young said.
“It’s in everybody’s interest to have a negotiated settlement here,” he said. “We’re working our hardest here to put the best offer on the table.”
Ashweeta Durani, an Assured Guaranty spokeswoman, declined to comment on the situation. Representatives of the other two insurers didn’t immediately respond to telephone calls seeking comment on the matter.
A key part of the deal may be the state’s willingness to enhance the credit of a new sewer bond refinancing, which would reduce the county’s interest costs. Previously, state officials said that would stop short of a full guarantee of new debt.
The county, home to Birmingham and more than 658,000 residents, has been under fiscal stress for more than three years after the earlier refinancing collapsed.
Jefferson’s woes intensified when the Legislature failed to act after a court struck down a local tax on wages in March. The tax generated about a quarter of Jefferson’s general-fund revenue, and losing it forced officials to put more than 500 employees on unpaid leave.
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