Jefferson County filed for bankruptcy in November after county, state officials, a court-appointed receiver and bondholders failed to implement a deal that would have reduced $3 billion in debt tied to the failed financing of a sewer renovation by about $1 billion. The county also has about $200 million of general-obligation bond debt and $814 million of school-construction bonds.
The decision to stop paying was difficult, said Kenneth Klee, the county’s bankruptcy attorney: “These general- obligation bonds are held by ordinary citizens who rely on the income.”
The financial crisis in the county, the state’s most populous, was caused by years of corruption and bond deals gone bad. Jefferson has laid off workers, closed courthouses and has been unable even to pick up roadkill on a timely basis.
Its general obligation debt is unsecured. In its bankruptcy petition, the county listed the top three unsecured creditors such debt as Munich’s Bayerische Landesbank, the Depository Trust Co. and a unit of JPMorgan Chase & Co. (JPM)
Carrington and Klee blamed the missed payment on the Alabama Legislature, which hasn’t allowed the county to raise more revenue since courts struck down a tax on wages.
Klee said reserves would drop to $7 million by September if the county continued to pay on its bonds: “That’s unacceptable,” he said in an interview in Birmingham.
The bonds in question were Series 2001-B, 2003-A and 2004- A.
“The county expects to be unable to resume payments on those warrants until they are restructured or reinstated under the county’s plan of adjustment in the Chapter 9 case,” according to a press release.
The restructuring “is dependent on legislative action to provide a stable, long term source of general fund revenues to the county,” the release said.
National Public Finance Guarantee Corp., formerly known as MBIA Insurance Corp., insures about $96 million of the 2003A and 2004 bonds.
“National will ensure that its policyholders will receive all of their principal and interest payments on time,” said Kevin Brown, a spokesman, in an e-mailed statement. “National remains concerned that the Alabama Legislature’s failure to act in support of the County could have negative repercussions for other municipalities throughout Alabama as well as for the state itself.”
Justin Perras, a spokesman for JPMorgan, declined to comment.
“Jeffco has turned from a sewer problem to a full-blown crisis of willingness to pay,” said Matt Fabian, a managing director at Municipal Market Advisors in Concord, Massachusetts. “The county and the state are both culpable in this.”
The case is In re Jefferson County, 11-05736-9, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham).
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