By Melinda Dickinson
Oct 17 Alabama's Jefferson County on Thursday threatened to cancel a plan for exiting its $4.2 billion bankruptcy unless Wall Street creditors agree to more concessions, possibly delaying the resolution of America's second-largest municipal bankruptcy filing.
Four members of the county commission unanimously voted to withdraw a $1.84 billion debt-cutting plan within 15 days if the creditors fail to give concessions they say are now needed because interest rates have shot up since the workout plan was agreed in June.
The plan, which was approved by creditors in early October but still requires court approval, relies on a $1.9 billion sale of new sewer system bonds to replace soured debt. Jefferson County's filing nearly two years ago had been the biggest U.S. municipal bankruptcy case until Detroit filed for bankruptcy in July.
Officials say there is now a $350 million shortfall in the agreement because interest rates have risen much more sharply than anticipated. A late 2013 sale of refinancing sewer warrants is planned.
Commission President David Carrington said JPMorgan Chase & Co and other creditors had made no concessions during talks last week in New York. More talks are set for next week, Carrington said.
A spokesman for JPMorgan declined to comment on Thursday.
"If the county does not hear from creditors in 15 days, we will file a notice of termination," the resolution said. "We will not ask the bankruptcy court to rule on a (plan) with a $350 million gap."
A hearing is scheduled for Nov. 12 for the federal judge overseeing the Jefferson County bankruptcy to confirm the plan.
Carrington said if officials withdrew the current plan, creditors and the county would have to reopen talks. County officials are targeting a late December exit from the bankruptcy that was blamed on overspending on a dilapidated sewer system, corruption and a drop in county revenues.
"We're on two tracks: to renegotiate or to terminate the plan and start all over," said County Manager Tony Petelos.
Both the county and its creditors, as well as hedge funds that have bought about $1 billion of Jefferson County's beaten-up debt, face rising rates that will curb the amount of bonds that can be sold, said James Schwartz, head of municipal research at BlackRock.
"When they originally structured the deal to come out of bankruptcy, they were looking at a rate environment that was much more attractive than it is today. I think they're going to have a hard time being able to maximize the recovery here," Schwartz said. "They're going to have to borrow less."