UPDATE 1-Bankrupt Alabama county launches nearly $1.8 bln debt sale

Fri Nov 15, 2013 12:53pm EST

By Caryn Trokie

Nov 15 (Reuters) - Underwriters for Alabama's Jefferson County started selling nearly $1.8 billion of sewer debt Friday in a deal that challenges long-held assumptions that America's $3.7 trillion municipal bond market will shun bankrupt issuers.

Pricing for retail buyers such as wealthy retirees and other details were not immediately available, according to a market source who said sales had begun.

Investors forecast that the debt, with maturities as long as 40 years, could price with tax-free yields as high as 6.5 percent. Such lush yields may draw non-traditional buyers of tax-free debt.

Home to Birmingham, Alabama's biggest city, Jefferson County filed for Chapter 9 bankruptcy just over two years ago, mostly because of $3.1 billion of soured sewer-system debt.

The new debt, which carries a mix of junk-bond and barely investment grade ratings, is meant to pay off current sewer debt owners at big discounts.

Citigroup is senior manager on the sale, which is central to a negotiated settlement with creditors such as JPMorgan Chase.

A federal bankruptcy judge will next week review the plan. If approved, the plan would end the county's $4.2 billion bankruptcy that had been the biggest ever by a U.S. local government until Detroit filed a bankruptcy case in July.

A second day of retail pricing for the Jefferson County sewer warrants is set for Monday, with pricing for institutions scheduled for Tuesday.

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