Jefferson County Extends Bondholder Talks After Rejecting Offer
Jefferson County, Alabama, officials extended until mid-September talks with creditors holding $3.14 billion of sewer bonds after rejecting a proposed settlement to avert what would be the biggest U.S. municipal bankruptcy.
County commissioners said yesterday they wanted to take a larger role in the negotiations, which have been led by Governor Robert Bentley and his chief of staff. The commission approved a resolution to negotiate directly with the creditors, the largest of which is JPMorgan Chase & Co. (JPM)
“You won’t see us around here much,” said commission President David Carrington at a public meeting where officials deliberated on the creditors’ plan. “We’re going to be in Montgomery, we’re going to be in New York; we’re going to do our best as a commission to resolve this.”
Yesterday’s public meeting followed a 24-hour see-saw that had commissioners believing they could reach a deal the night of Aug. 11 and then ready to file for bankruptcy the next morning, according to interviews with members of the panel.
The decision to extend the talks until Sept. 16 came after the five-member commission outlined concerns with an offer by bondholders to settle the crisis. The county of 660,000, home to Birmingham, the state’s largest city, has struggled after a sewer-bond refinancing collapsed during the 2008 credit squeeze.
Its woes intensified when the state Legislature declined to act after a court struck down an occupational tax in March. The tax generated about a quarter of the county’s general-fund revenue, and officials have put more than 500 employees on unpaid leave.
Terms of the creditors’ latest offer include four scenarios for raising sewer rates to support a $2.33 billion debt refinancing by June 30, 2012.
The base-case scenario, which doesn’t include $1 billion in bond insurance, would amount to a 25 percent rate increase over 18 months, which Commissioner George Bowman called excessive. The other plans called for increases ranging from 6.1 percent to 7.1 percent in the first three years, with 3 percent annual boosts for the next 36 years. Commissioners suggested those proposals may be acceptable.
“The difference between what the county proposed and what the creditors offered in terms of practical impact on ratepayers is about 30 cents per month on an average sewer bill,” said David Perry, Alabama’s finance director, in a telephone interview after the meeting. “That is an amazing feat for the county to have gotten an offer that attractive.”
Perry said the differences are “so minor in the grand scheme of things that it would be a shame to see the county file for bankruptcy.”
Creditors would get back $2.07 billion, or about 33 percent less than the amount outstanding. Another $233 million would go to a debt-service reserve fund. Commissioner Jimmie Stephens said he was disappointed the creditors hadn’t agreed to cap the interest rate for the borrowing.
Justin Perras, a JPMorgan spokesman in New York, declined to comment.
The bondholders’ seven-page plan calls for the creation of an independent sewer authority that would manage the system. A majority of its board members would be appointed by the governor.
“We lose total control by the creation of this organization,” Bowman said. New debt issued by the authority would be backed by a “moral obligation” pledge of the state.
Creditors also proposed a $20 million low-income assistance program to help poor residents pay for the increases in their sewer bills, and an agreement by all parties to dismiss outstanding litigation.
As part of the offer, state lawmakers would be asked to shore up the county’s general fund by finding replacement revenue for the occupational tax. In June, a bill that would have given the county the ability to boost levies on sales, leases and rentals, alcoholic beverages and other goods and services was killed on the last day of the legislative session by a single senator, Scott Beason, a Republican who represents a portion of the county.
The new sewer authority and the state’s non-binding guarantee to make up deficiencies in debt-service payments require the action of the state Legislature.
If Alabama needed to come to the county’s aid, Jefferson would have to reimburse the state with local revenue. Commissioners said there were too many contingencies in the creditors’ offer.
It was the third time in about two weeks that county officials met to consider authorizing a Chapter 9 bankruptcy filing, only to vote to extend talks.
Commissioner Sandra Little Brown said she would agree to keep negotiating out of respect for the governor, who has said he would do everything in his power to avoid bankruptcy.
The governor “asked us to give him some more time” to persuade legislators to offer more assistance to the county, said Little Brown. The governor has agreed to call a special session of the Legislature in September, the commission said.
Commissioner Joe Knight demanded that county officials take a bigger role in negotiations.
“We’re not afraid to file Chapter 9,” he said. “I’m not willing to allow more time unless we’re called into the negotiations.”
Knight said he learned yesterday morning that creditors were refusing to budge on commission concerns with the offer delivered the previous afternoon, he said in an interview after the meeting.
“My understanding then was, ‘This was it,’” he said. “I was not satisfied.”
He said he went into yesterday’s executive session expecting to come out and vote for bankruptcy.
Carrington, the commission’s president, said he was hoping to reach a better deal with creditors into yesterday’s early hours.
“As late as midnight or 1 a.m., I thought we were making substantive progress,” he said after the meeting. “And then the lawyers got involved. It sort of got off track.”
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