A 34-day negotiation window between Jefferson County, Alabama, and creditors holding $3.14 billion of its debt ends this week as evidence of financial strain mounts.
The County Commission will meet Sept. 16 to consider filing the largest municipal bankruptcy in U.S. history if an agreement with creditors can’t be reached in the wake of a failed sewer-bond refinancing. Leaders say a deal is closer than it was when the five-member panel rejected a settlement Aug. 12 -- yet obstacles remain.
“We are fairly close to an agreement in principle,” said Jimmie Stephens, the commission’s Finance Committee chairman, said in an interview in Birmingham last week. “The numbers aren’t there yet, though.”
The sides are also at odds on the structure of a proposed independent sewer authority, which would manage the system.
A proposal from creditors would transfer about $1.5 billion in sewer assets to a new authority, Stephens said in a phone interview yesterday. He said he supported creating that authority but that the transfer is “not in the best interests of the citizens of Jefferson County.”
At least three of the five commissioners oppose any deal that includes the requirement, he said.
In interviews last week, commission President David Carrington said he would consider extending negotiations.
Stephens said he wouldn’t.
“I will not delay,” Stephens said. “I will make a motion, either for bankruptcy or settlement. I will not make a motion to delay.”
Beyond the Bonds
Jefferson’s sewer bonds trade infrequently, given the uncertainty surrounding the county’s future and a limited number of investors who buy distressed municipal bonds.
On Aug. 17, $1.9 million of Jefferson County sewer auction-rate securities traded at 65.5 cents on the dollar, according to data compiled by Bloomberg. Three weeks earlier, one investor bought the same debt at 62.5 cents while another paid 74.5 cents on the dollar.
Jefferson County faces financial challenges beyond its sewer deal. It lost about $70 million in annual revenue this year when the Legislature failed to reinstate a wage tax that a court struck down.
The commission was poised to file for Chapter 9 bankruptcy protection Aug. 12 after rejecting an offer from creditors that would have cut $1 billion from the county’s debt.
New York Tour
Stephens and Carrington headed to New York to meet with creditors and insurers two weeks later, talking to JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp., Assured Guaranty Municipal Corp., Syncora Guarantee Inc. and FGIC Corp. on Aug. 24 and 25, according to written statement Stephens gave reporters.
Carrington, Stephens and David Perry, chief of staff to Alabama Governor Robert Bentley, described those meetings as productive in telephone interviews last week.
Perry said the county and creditors were “very close on the numbers” for sewer-rate increases that would support refinanced bonds, although “the county’s not quite where they want to be in terms of a new principal amount.”
The sides are about $140 million apart, commissioners have said.
Perry said there were differences on the structure of the proposed sewer board, which would be set up by the Legislature.
“All the bondholders care about is having a rate increase schedule and independent sewer board structure that ensures that the debt can be paid,” he said.
“The commissioners can say they want one thing, but that doesn’t mean they’ll get it out of the Legislature,” Perry said.
While negotiations with bondholders unfolded, the county’s larger financial problems continued.
On Aug. 30, at budget hearings in Birmingham, the commission announced 2012 revenue was $40 million short of expenses. The spending plan must be approved by next month, Stephens said.
The next day, the chief justice of the Alabama Supreme Court, Chuck Malone, reversed an order that had cut the number of jury trials held at county courthouses, which may increase security costs next year.
A group of prisoners sued Jefferson County the same day in U.S. District Court. The suit said jail overcrowding violated their constitutional rights and that the county would blame its finances:
“The plaintiffs aver that budget constraints are not an excuse for ignoring clear and well known constitutional mandates.”