Bankrupt Jefferson County Selling $1.7 Billion in Debt

Jefferson County, Alabama, plans to market $1.7 billion in sewer-refinancing bonds as soon as next week as part of its plan to exit from bankruptcy, county commission President David Carrington said.

The county has asked that a hearing on the bankruptcy be postponed until Nov. 20 to allow time to sell the debt, Carrington said in an e-mailed statement.

“We are going to aggressively sell these warrants over the next two weeks,” Carrington said in an interview yesterday. “There is a strong appetite for this offering.”

The plan calls for selling $500 million of senior bonds and $1.2 billion in subordinated debt. About $1.1 billion of the bonds will pay interest on a periodic basis, while more than $480 million will be zero-coupon debt that can convert to securities that pay interest periodically, according to a county document.

Underwriters led by Citigroup Inc. will be paid $11.7 million, including legal fees and other expenses, according to the document.

Assured Guaranty Ltd. will insure $500 million of the senior debt under the agreement, according to a statement from Carrington yesterday. JPMorgan Chase & Co. will provide a 40-year letter of credit that allows the county to avoid borrowing to fund the debt-service reserve, according to the statement.

Hedge Funds

Under a July proposal by Citigroup, the county will market the debt to mutual funds, hedge funds and money managers that focus on high-yield bonds. The hedge funds include Och-Ziff Capital Management LLC and Moore Capital Management LLC, while high-yield-focused managers include Claren Road Asset Management LLC and Fundamental Advisors LP.

The offering is a result of a deal reached Oct. 30 between the county and its creditors. It replaces a settlement reached in June. Rising interest rates made the original deal unworkable.

The interest rate on BBB rated 30-year muni revenue bonds has declined to 7.16 percent from a 30-month high of 7.49 percent on Sept. 6, data compiled by Bloomberg show.

Jefferson County officials will host an investor meeting and tour on Nov. 7, said Lyle Fitterer, a managing director at Wells Capital Management in Menomonee Falls, Wisconsin. Uninsured sewer debt offered by the county will probably be rated below investment grade, he said.

“It’s one we’re going to look at,” Fitterer said.

In evaluating the new bonds, Wells will look at the security of the revenue stream as well as sewer system management and Alabama politics, he said.

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