Jefferson Bankruptcy ‘Negative’ for Madison, Alabama, Bond Sale

Madison, Alabama, whose population grew more than 46 percent in the past decade, faced higher borrowing costs than the national average when it became the state’s first issuer to sell debt after Jefferson County’s bankruptcy, the city’s underwriter said.

The city of about 43,000 that’s 100 miles north of Birmingham last week sold about $18 million of tax-exempt general-obligation debt to buy back bonds from 2002, according to the preliminary official statement. Standard & Poor’s rated the new obligations AA, the company’s third-highest level.

The debt matures from 2013 to 2032, with yields from 1 percent to 4.35 percent, according to data compiled by Bloomberg. Similarly rated bonds across the country yielded from 0.71 percent to 4.15 percent, Bloomberg data show. Yields go up as prices go down.

“There’s no question that the Jefferson County situation has been a negative,” said Joe Jolly, president and owner of Birmingham-based Joe Jolly & Co., Madison’s underwriter on the negotiated deal. “It’s unfortunate. The Jefferson County sewer-system situation is an aberration.”

Jefferson County owes $3.14 billion connected to a botched sewer renovation and $1 billion of general-obligation and school debt. It filed for bankruptcy Nov. 9 when the county, a receiver overseeing the sewer system, bondholders and lawmakers failed to implement a tentative deal that would have cut the amount owed and increased sewer rates.

Meanwhile, in Madison

Madison has a population of about 43,000, a 46 percent increase from 29,000 residents in 2000, Census Bureau data show. Alabama’s population grew by 7.5 percent over the same period.

Madison, a Huntsville suburb, delayed its sale after planning to offer its debt in October, Jolly said. Issuers in the state sold $1.8 billion in municipal debt this year, Bloomberg data show. That compares with almost $3 billion in the same period last year.

Some investors won’t purchase bonds from Alabama issuers because of what happened in Jefferson County, said Jolly, who has been in the business 50 years.

Municipalities within Jefferson County are worthy credits, said Jolly, whose company almost exclusively deals with Alabama issuers. His office is two blocks from the county courthouse in Birmingham.

“We’ll get along fine, but it has had a negative impact on the entire Alabama bond market,” he said.

York Health Care Authority in Sumter County plans to issue about $2 million of bonds this week, becoming the second issuer in the state since the bankruptcy filing, Bloomberg data show.