FACTBOX-Alabama county's debts lead it toward bankruptcy

WASHINGTON, Aug 29 (Reuters) - Alabama's governor and Wall
Street lenders are working to avoid a municipal bankruptcy
filing by Jefferson County, the states most populous county,
that could stem from problems with the county's $3.2 billion of
sewer debt. The two sides reached an agreement on Friday to
keep some of the debt from defaulting which will expire Sept.
30.

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

* Jefferson County's $3.2 bln of sewer debt includes:

- $850 million of variable-rate demand notes

- $2 billion of auction-rate debt

- The remainder is fixed-rate debt

- The variable-rate notes were the subject of a
forbearance agreement that expired Friday.

- S&P downgraded the variable rate debt to "D" in April
after the county failed to make a principal payment.

* Lenders and insurers involved in latest negotiations

- Many of variable-rate demand notes are backed by bond
insurer Syncora Guarantee, formerly known as XL Capital (XL.N)

- The notes are now held by liquidity providers including
JPMorgan Chase (JPM.N), Bank of America Corp (BAC.N), Bank of
Nova Scotia (BNS.TO), Societe Generale, Regions Bank (RF.N),
Bank of New York (BK.N), State Street Corp (STT.N) and Lloyds.
Liquidity providers held the notes once buyers proved scarce.

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

- Both FGIC and Syncora have been targeted in a sweeping
federal investigation into municipal bond derivatives.

* Jefferson County's total debt oustanding is $4.5 billion

* Problems with auction-rates and swaps

- In March, the county began burning through cash due to a
spike in interest rates on its auction-rate debt. According to
Moody's Investors Service, the rates reached as high as 6.2
percent

- Moody's then cut the bonds to junk.

- The ratings downgrade allowed parties in interest rate
swap agreements with the county to end their contracts and
charge termination fees that the system would not be able to
cover, Moody's says.

- 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.

* The Securities and Exchange Commission charges

- The SEC sued three individuals in April for fraud in
connection to the swaps.

- It alleges Birmingham Mayor Larry Langford took more than
$156,000 from William Blount when he was president of the
county's commission

- In exchange Blount's investment bank, Blount Parrish, was
involved in all of the county's swap agreements in 2003 and
2004, the SEC says.

- Lobbyist Albert LaPierre has been charged as a conduit
for the money.

- The defendants have asked the U.S. District Court for the
Northern District of Alabama to dismiss the case.

* Sewer system rate payers filed a class action lawsuit in
June for disgorgement of the $120 million fees charged for a
series of swaps in 2002 and 2003 against investment banks and
bond insurers including J.P. Morgan (JPM.N), Goldman Sachs
(GS.N), Lehman Brothers LEH.N and Regions Bank (RF.N).

* Two county commissioners have been convicted of bribery
and fraud in connection with sewer repairs, with the county
paying two to three times as much as other Southeastern cities
for the repairs.

* By March, the average monthly water-sewer bill in the
county had risen to $94.92.

* In August, the Jefferson County Commission voted
unanimously to authorize Alabama's Republican Governor, Bob
Riley, to lead negotiations with lenders. But the governor has
said the state will not bail out the county.

(Reporting by Lisa Lambert, Karen Pierog, Joan Gralla,
Michael Connor, Melinda Dickinson, Anastasija Johnson, Verna
Gates )