Leeds, Alabama, a city 17 miles east of Birmingham that’s the hometown of former basketball star Charles Barkley, is fortunate to have sold about $9 million of tax-exempt general-obligation bonds the day before Jefferson County filed for bankruptcy, the mayor said.
The city of about 12,000 has neighborhoods in three counties. About 75 percent of the 23-square-mile municipality is in Jefferson County, Mayor Eric Patterson said in a telephone interview.
Jefferson County’s commissioners voted 4-1 to file the largest U.S. municipal bankruptcy yesterday after reaching an impasse over concessions with holders of $3.14 billion of bonds.
“We feel very lucky,” said Patterson, who has been mayor for three years. “When I saw that this morning, I was thinking, ‘I’m glad we got our bonds sold on Tuesday, because I don’t know what this is going to do to the market.’”
Standard & Poor’s rated Leeds’s debt A+, the company’s fifth-highest rating, with a stable outlook. Bonds maturing in 10 years were priced to yield 3 percent. Similarly rated general-obligation bonds maturing in 10 years yielded 3.45 percent on Nov. 8, according to Bloomberg data.
The market had already considered Jefferson County’s financial distress when pricing Leeds’s bonds, said Paul Woodall, a Birmingham-based partner at the Jones Walker law firm who helped with the city’s deal.
The bankruptcy has so far had little impact on the $2.9 trillion tax-exempt bond market. The yield on top-rated tax-exempt bonds maturing in 10 years was 2.24 percent at 1 p.m. New York time compared with 2.25 percent yesterday, according to data compiled by Bloomberg.
Leeds is a mining and manufacturing community where Barkley, the so-called Round Mound of Rebound who played for several National Basketball Association teams, grew up. It relies less on Jefferson County than other cities within its boundaries, Patterson said. The city does have a sewer plant that belongs to Jefferson County, he said.
The county’s Chapter 9 filing eclipses the previous record, set in 1994 by Orange County, California. The move leaves creditors including JPMorgan Chase & Co., the biggest U.S. bank by assets, facing hundreds of millions of dollars in losses and may revive concern that defaults will rise in the $2.9 trillion municipal bond market.
“If I was looking at a bond in some city in another state and I was looking at a bond down here to buy, it would have an effect on me,” Patterson said. “It is a big deal and a good thing that we sold those bonds before they went bankrupt.”