Commissioners of Jefferson County, Alabama, will consider new terms in a proposed accord with creditors on exiting bankruptcy, avoiding a collapse that would have let the parties back out of a settlement reached in June.
The county commission will meet at 3 p.m. local time today to discuss the agreement in principle, reached with all the major creditor groups tied to about $3 billion in sewer financing, Chairman David Carrington said yesterday in a statement. He didn’t provide details of the new terms.
“This effort has involved a lot of people who have worked diligently to solve a very difficult problem,” Carrington said.
The June deal was in danger of being canceled if the county didn’t get about $350 million more in concessions from creditors, commissioners said Oct. 17. That deal provided $1.84 billion in cash to settle the debt, tied to a bankruptcy-exit plan. The county entered court protection about two years ago.
The county would consider forcing creditors to accept less than they have been offered under the settlement, using the so-called cramdown rules of the U.S. Bankruptcy Code, Carrington said on Oct. 17.
Jefferson County became what was then the biggest U.S. municipal bankruptcy in 2011, when it couldn’t pay what it owed on more than $3 billion in bonds sold to finance sewer work. Refinancing the debt was tainted by political corruption. JPMorgan Chase & Co. (JPM) agreed in a 2009 settlement with the U.S. Securities and Exchange Commission to pay the county $75 million and give up more than $657 million in swaps claims.
Under the first settlement, less than $100 million of the county’s $4.2 billion in debt would have been paid without changes to the original lending terms. Sewer warrant holder JPMorgan Chase & Co. would collect 31 percent of what it was owed, while some general-obligation bondholders would lose the right to collect penalties and a higher interest rate.
County finance committee Chairman Jimmie Stephens said he wouldn’t discuss the new agreement until after today’s meeting. Carrington didn’t respond to telephone calls to his office and home seeking further comment on the new deal. He said in the statement that details couldn’t be discussed before the meeting.
The county’s lead bankruptcy lawyer, Kenneth Klee of Klee Tuchin Bogdanoff & Stern LLP in Los Angeles, said he couldn’t call back late yesterday because he was on an airplane, when reached by e-mail. He declined to comment via e-mail.
“Either there will be concessions or we’ll have to go to a different kind of plan,” Klee said in an August interview.
The June agreement was signed by New York-based JPMorgan, as well as a group of hedge funds and bond insurers. Justin Perras, a spokesman for the bank, the biggest in the U.S., declined to comment on the new agreement.
The lender was slated to take the deepest cut, accepting $375 million on $1.22 billion it is owed by the county, according to the June deal.
Hedge funds that are owed about $872 million were to collect more than 80 cents on the dollar under the June accord. The funds also agreed to help backstop the refinancing to ensure that the county could raise the money it needs.
The funds include Brigade Capital Management LLC, Claren Road Asset Management LLC, Fundamental Advisors LP, all based in New York, and Monarch Capital Master Partners LP, according to court records.
Insurers, including Assured Guaranty Municipal, Syncora Guarantee and Financial Guaranty Insurance, were to get $165 million under the earlier agreement. They said they were owed $315 million.
Ashweeta Durani, spokeswoman for Assured Guaranty Ltd. (AGO), declined to comment. Michael Corbally, chief administrative officer of Syncora Guarantee, said he couldn’t comment about a continuing legal matter.
U.S. Bankruptcy Judge Thomas Bennett is scheduled to consider approving the bankruptcy-exit plan next month at a hearing in Birmingham.
The case is In re Jefferson County, 11-bk-05736, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham).
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