FACTBOX-The debts that led Alabama county to bankruptcy

Mon Nov 14, 2011 5:25pm EST

Nov 14 (Reuters) - Jefferson County, Alabama, lawmakers voted last week to file for Chapter 9 court protection over a $3.14 billion sewer bond debt, in what is the largest municipal bankruptcy in U.S. history.

The county voted to file for bankruptcy after a deal with creditors to settle its debts unraveled.

Here are some facts about the county's financial and legal troubles.

* Jefferson County is the most populous county in the southern U.S. state of Alabama and home to its largest city, Birmingham. The county's population was about 659,000 in 2010.

* The county's total debt outstanding is $4.5 billion and its sewer debt totals $3.14 billion.

The sewer debt includes:

- $850 million of variable-rate demand notes;

- $2 billion of auction-rate debt

- the remainder is fixed-rate debt

* The 20 largest unsecured claims in the Chapter 9 case total $206.34 million.

- JPMorgan Chase & Co and Germany's Bayerische Landesbank have the largest unsecured claims in the Chapter 9 case at $52.13 million apiece.

- JPMorgan holds roughly $1.2 billion of the sewer debt, and it led creditors in negotiations aimed at settling the debt this summer.

- Many of the variable-rate demand notes were backed by bond insurer Syncora Guarantee, formerly known as XL Capital.

- Insurance company FGIC guaranteed $1.2 billion of the sewer debt.

- The notes were then held by liquidity providers including JPMorgan Chase, Bank of America Corp, Bank of Nova Scotia , Societe Generale,Regions Bank, Bank of New York, State Street Corp. and Lloyds when buyers proved scarce.

* After Jefferson County defaulted in 2008, the debt's credit rating fell into junk status.

- S&P recently lowered ratings on the county's general obligation warrants, the public building authority's lease-revenue warrants and some of its limited obligation school warrants.

- Moody's has said that the risks to those holding the county's general obligation debt has risen and payments on fixed-rate bonds could be disrupted in a bankruptcy.

* Sewer rates rose as the county scrambled to pay off the debt and taxpayers wondered how they could cover the debt.

- At one point, the average monthly water-sewer bill in the county rose to be just pennies shy of $95.

- In 15 years, the sewer rates more than quadrupled, and in June the county shelved plans for another 25 percent hike.

- Annual sewer revenue is $298 million, meaning it would take the county a little more than 10 years and six months to settle its debt if the county exclusively dedicated its sewer income to paying off the bonds.

- In 2009, state lawmakers approved an occupational tax for the county, but last March the state Supreme Court said the tax was unconstitutional and the county developed a serious budget shortfall, further stressing its finances.

- In June 2011, a bill to give the county an additional $50 million a year in tax revenue died in state Legislature.

* The sewer system scandal has inspired criminal charges, a federal investigation, and a lawsuit.

- Altogether there have been 22 convictions, including elected officials and government workers over the deals, which involved corruption, bribery and fraud charges.

- In 2009, Jefferson County sued JPMorgan for fraud over its debt.

- JPMorgan has paid more than $75 million and waived about $647 million in fees as part of a settlement with the Securities and Exchange Commission over charges of fraud in connection with the debt.

- In 2010, a federal judge sentenced investment banker William Blount and lobbyist Al LaPierre to four-year prison terms for corrupt bond deals related to the debt.

- In 2009, a federal jury found former Birmingham Mayor Larry Langford guilty of 60 counts of corruption relating to his term as president of the county commission and the bond swaps that led to its debt.

- Sewer system rate-payers filed a class action lawsuit in 2008 for disgorgement of the $120 million fees charged for a series of swaps in 2002 and 2003 against investment banks and bond insurers.

* Problems with auction-rate and variable-rate notes led to troubles with swaps.

- In 2008 the county began burning through cash due to a spike in interest rates on its auction-rate debt.

- When the bonds' ratings were cut to junk, parties in interest rate swap agreements with the county to end their contracts and charge termination fees.

- In most swaps, two parties exchange interest rate payments, with one paying a fixed rate and the other a floating rate usually linked to an index. Auction-rate and variable-rate bonds have interest rates that reset frequently.

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