Jefferson County, Alabama’s plan to exit bankruptcy has “overwhelming support” from JPMorgan Chase & Co. and other creditors that would make more than $1.4 billion in concessions, a lawyer for the county said.
The only objections left are based on “hyperbolic” arguments, attorney David Stern said today at a court hearing in Birmingham, the county seat. The final major opposition comes from two sets of lawyers who want to sue JPMorgan and others over more than $3 billion in debt that was tainted by a bribery scandal.
“You can’t please all the people all the time,” Stern told U.S. Bankruptcy Judge Thomas Bennett.
Bennett’s decision on whether to approve the plan may come as soon as today. After battling in court for about 20 months, creditors owed $2.7 billion, including New York-based JPMorgan, settled with the county in June by agreeing to accept less. A rise in interest rates forced more concessions, which were announced last month.
The plan also imposes several years’ worth of rate increases on sewer users. County officials want Bennett to approve the plan by tomorrow so they can close on $1.84 billion in new financing on Dec. 3. Bennett has said he plans to deliver an oral ruling on the plan from the bench, followed by a written order.
“Let’s put the last nail in the coffin and bury it,” County Commissioner Jimmie Stephens said yesterday at a county commission meeting. “Let’s restore accountability.”
The deal with creditors would lock in more than $1.4 billion in concessions without the risk of suing JPMorgan, Eric Rothstein, a county utility rate consultant, said in court yesterday. Those savings are a safer proposition than the $1.6 billion that could be won in a lawsuit that opponents of the county’s bankruptcy exit plan want to pursue, he said.
“That $1.4 billion writedown is a certainty,” Rothstein told Bennett. “The $1.6 billion number is speculative, and I believe must be discounted.”
The $4.2 billion bankruptcy, filed Nov. 11, 2011, was the largest by a U.S. city or county until it was overtaken in July by Detroit’s $18 billion case.
This week’s hearing is a chance for the last plan opponents to persuade Bennett to reject it.
Two sets of lawyers fighting to save suits they filed on behalf of sewer ratepayers and other plaintiffs have asked Bennett to reject the plan, saying the rate increases are too high for residents to afford. Should Bennett agree with them, the lawsuits, which are now on hold, could resume.
“Following a 10-year period, or shortly thereafter, we’ll be back here in bankruptcy,” Steven W. Couch, an attorney for sewer customers opposed to the plan, told Bennett today.
Rejecting the plan would blow up the settlement because the county agreed to halt the lawsuits in return for a reduction in principal on the $3 billion in sewer debt. Under the settlement, the sewer debt will drop to $1.98 billion with plan approval.
Attorney Calvin B. Grigsby said the plan imposes the burden on Jefferson County’s poorest residents, who may not be able to afford the higher rates needed to pay off the debt.
Bennett allowed five members of the public to speak at the hearing. Four, including two elected officials, opposed the plan, saying the rate increases would harm the poor.
The county sold all of the new warrants needed to raise $1.84 billion to refinance about $3 billion in sewer debt, the county’s lead bankruptcy lawyer, Kenneth Klee of Klee Tuchin Bogdanoff & Stern LLP in Los Angeles, said in court yesterday. The plan calls for selling $500 million in senior bonds and $1.2 billion in subordinated debt.
“When the credit rating of Jefferson County improves, the county will be able to go back into the market and refinance and get a lower rate,” he said.
The case can be traced to an aging sewage system that federal regulators ordered fixed in the 1990s. To pay for the repairs, Jefferson County began borrowing money and refinancing old debt, issuing more than $3 billion in warrants and interest-rate swaps by 2003.
Local elected officials accepted bribes from construction contractors and financial advisers seeking business with the county. By 2010, 21 people, including four county commissioners, had been convicted or pleaded guilty to corruption-related charges, according to Peggy Sanford, a spokeswoman for the U.S. Attorney’s Office in Birmingham.
In 2009, JPMorgan signed a $722 million settlement with the U.S. Securities and Exchange Commission for its role in helping arrange the sewer debt.
As part of the June deal, JPMorgan agreed to forgive about $842 million of the $1.22 billion the county owes it. After interest rates rose, JPMorgan agreed to forgive about $100 million more in debt and to provide the county with a letter of credit for about $180 million.
Other creditors, including bond insurers and a group of hedge funds, also agreed to take less than they were owed.
The case is In re Jefferson County, 11-bk-05736, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham).