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UPDATE 2-Alabama county extends talks to avert bankruptcy
August 4, 2011 / 7:05 PM / 6 years ago

UPDATE 2-Alabama county extends talks to avert bankruptcy

 * 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 (Reuters) - 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 negotiations.
 “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 step.
 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 system.
 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 read.
 “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)   

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