* Talks extended by one week
* County faces $3.14 billion sewer debt plus other debt
* County says talks with creditors "extremely fragile"
(Adds details, byline)
By Matthew Bigg and Melinda Dickinson
BIRMINGHAM, Ala.. Aug 4 Alabama's Jefferson
County extended talks over a $3.14 billion sewer bond debt on
Thursday in a bid to avert what would be the largest municipal
bankruptcy in U.S. history.
The talks were "extremely fragile" and the one-week
extension was to seek further concessions from creditors, said
Jefferson County Commission President David Carrington at the
end of a closed-door executive session in which the county
could have filed for Chapter 9.
"We have reviewed the creditors offer in exhaustive detail,
point by point. We are working on a counter-offer to their
proposal," Carrington told a commission meeting.
He gave no details of the negotiations with creditors, who
include JP Morgan Chase & Co (JPM.N), but said the decision to
extend came after an intervention from Governor Robert Bentley,
who has taken an increasingly prominent role in the
"There were many good points within their proposal, but we
feel it is prudent for us to give some minor adjustments and to
give one final and best shot to solving this crisis," said
finance commissioner Jimmie Stephens after the meeting.
Had the county declared bankruptcy it would have been the
second U.S. municipality this week to take the highly unusual
The small city of Central Falls, Rhode Island, filed for
Chapter 9 on Monday over an $80 million unfunded pension and
retiree health benefit liability.
Both places are in part casualties of the U.S. financial
crisis as is Vallejo, California, which went bankrupt in 2008.
The largest previous Chapter 9 filing was Orange County,
California, in 1994.
One issue dividing creditors and Jefferson County is how
much the 660,000 county residents should pay in sewer rates,
according to Stephens.
Residents already pay some of the highest sewer rates in
the country and some fear several years of steep increases
might be part of a deal to refinance the debt. County
commissioners say they will resist any steep rises.
CORRUPTION, BAD DEALS
Municipal bond markets are watching the county's situation
closely and any move to bankruptcy could shake the $2.9
trillion market. It could also have major repercussions for
Alabama because the county's largest city, Birmingham, is an
economic engine for the state.
The county's debt is rooted in corruption among local
politicians and business leaders that has led to 22
convictions. It also stems from deals made with financial
institutions that sold the county a disastrous series of bond
swaps in the mid-2000s to refinance an upgrade to its sewer
Interest on those swaps spiraled in 2008 when the bond
market fell sharply, triggering the crisis. The county faces a
separate shortfall in its general fund and general fund
warrants totaling about $1 billion.
Outside the Jefferson County courthouse where the meeting
took place a handful of concerned ratepayers held up signs and
demanded the commissioners pursue bankruptcy.
"Flush JP Morgan down the toilet not ratepayers," one sign
"The tragic thing is that people are the ones who end up
paying for all the lying, thievery and cheating that the
politicians have engaged in in the last few years," said Keith
Mims, a salesman.
If the county pursues Chapter 9 bankruptcy, it will not be
exempt from its bond obligations, but would likely face a
further period of talks with creditors over refinancing the
debt, analysts and county leaders say.
(Editing by Tom Brown; editing by Andre Grenon)