Alabama’s Jefferson County Starts $1.8 Billion Bond Sale

Jefferson County, Alabama, began selling $1.8 billion of sewer bonds to individual investors today as part of plan to emerge from bankruptcy.

The county is offering 40-year insured senior debt at 5.75 percent and some 40-year uninsured junior bonds at 6.5 percent, according to three people familiar with the marketing who asked for anonymity because the pricing isn’t final. The retail order period will continue on Nov. 18.

The preliminary yields on the 40-year senior securities compare with a 5.53 percent interest rate on similarly rated benchmark revenue debt due in 30 years, data compiled by Bloomberg show. Top-rated munis of that maturity yield about 4.16 percent, Bloomberg data show.

Jefferson County, which has 660,000 residents and is home to Birmingham, Alabama’s most populous city, filed a record bankruptcy in 2011 when it couldn’t pay what it owed on more than $3 billion in bonds sold to finance sewer work. Banks underwriting the debt, led by Citigroup Inc. (C), will set prices for institutional investors on Nov. 19.

To repair its reputation and maintain its credit rating, the county needs to demonstrate consistent willingness to pay its debts on time and in full without court intervention, Standard & Poor’s analyst James Breeding said last week in a report. It must meet forecasts for water-and-sewer usage and maintain the revenue available for debt service that is spelled out in the covenant for the new bonds.

Divided Sale

The issue is divided between $500 million of senior debt and $1.3 billion of subordinated securities. The senior bonds are insured by Assured Guaranty Municipal Corp. (AGO) and carry a AA-rating from S&P. The senior bonds carry a junk underlying rating of BB+ from Fitch Ratings while S&P gives the debt an investment grade rating of BBB.

The junior bonds aren’t insured and carry a junk BB rating from Fitch while S&P rates the debt investment grade at BBB-.

Sewer rates will rise almost 7.9 percent each year from 2014 through 2017, and by almost 3.5 percent thereafter through 2053, according to bond documents.

Citigroup declined to comment, Scott Helfman, a spokesman, said in an e-mail.

To contact the reporters on this story: Martin Z. Braun in New York at mbraun6@bloomberg.net; Michelle Kaske in New York at mkaske@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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