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Bankrupt Alabama County Reaches New Accord With Creditors

Jefferson County Commission Reaches New Accord With Creditors
JPMorgan, the biggest U.S. bank by assets, took the lead in arranging the risky securities deals that pushed Jefferson County, Alabama into bankruptcy in 2011. Photographer: Scott Eells/Bloomberg

Commissioners in Alabama’s Jefferson County approved a deal with creditors, including $100 million in new concessions from JPMorgan Chase & Co., that may allow the county to end its two-year bankruptcy.

JPMorgan, the biggest U.S. bank by assets, took the lead in arranging risky securities deals that pushed the county into bankruptcy in 2011. The bank had already agreed to forgive $842 million of the $1.22 billion it was owed.

Under the debt-reduction settlement, bond insurers agreed to $40 million in additional concessions; hedge funds, $17.5 million; and liquidity banks, $2.8 million. JPMorgan additionally pledged to provide a 40-year letter of credit up to $180 million, commissioners were told.

“We now have a clear path out of bankruptcy,” commission President David Carrington said yesterday after the panel voted to accept the agreement.

Finance Chairman Jimmie Stephens called the plan less than ideal, but the best the county could do.

“It’s confirmable, feasible and sustainable,” Stephens said in an interview in Birmingham.

A JPMorgan spokesman, Justin Perras, said the company would have no comment.

The agreement replaces a deal reached in June that became unworkable due to rising interest rates. It would have left the county about $350 million short of what it needed to exit bankruptcy. The earlier deal provided $1.84 billion in cash to settle about $3 billion in sewer debt, tied to a bankruptcy-exit plan.

Biggest Bankruptcy

Jefferson County became what was then the biggest U.S. municipal bankruptcy in 2011 when it couldn’t pay what it owed on the sewer bonds. The sewer project was tainted by political corruption and by risky refinancing methods.

JPMorgan 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.

The hedge 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.

‘Integral Part’

“Assured Guaranty has been an integral part of the solution by helping to facilitate a viable bankruptcy exit plan,” Chief Executive Officer Dominic Frederico said in a statement.

Assured will insure $500 million in new Jefferson County debt under the agreement, according to the statement.

Syncora doesn’t comment on matters being litigated, Managing Director Michael Corbally said by e-mail.

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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