By Melinda Dickinson
BIRMINGHAM, Ala. Oct 31 Alabama's bankrupt Jefferson County on Thursday approved a reworked settlement plan for its landmark $4.2 billion municipal bankruptcy that increases already stiff losses for Wall Street creditors by $300 million.
With a 4-to-1 vote, the county commission kept Alabama's most populous county on track for a targeted 2013 end of its nearly 2-year-old bankruptcy case. Jefferson County's case had been the biggest by any U.S. local government until Detroit, with debts more than $18 billion, filed for bankruptcy in July.
The revised terms mean JPMorgan, hedge funds and creditors will recover around 53 cents on the dollar, as opposed to about 60 cents under the previously agreed terms. It also cuts the size of a bond sale the county must hold to complete its exit from bankruptcy.
County officials two weeks ago said they needed $350 million more in concessions, arguing that jumps in interest rates had made a planned $1.9 billion bond sale meant to replace $3.1 billion of soured sewer debt too expensive. They threatened to scuttle a negotiated agreement reached in June.
The creditors agreed to $300 million in new concessions, with the revised settlement calling for a smaller debt sale of about $1.74 billion, county officials said.
The revised deal hands an additional $100 million loss to JPMorgan, which already made substantial concessions in the original agreement, according to Commission President David Carrington.
JPMorgan also agreed to provide the county with a 40-year letter of credit, which will allow the county to skip borrowing for a debt service fund for its planned bond deal and save an estimated $140 million over four decades, Carrington said.
A spokesman for JPMorgan was not immediately available, but insurer Assured Guaranty Municipal said in a news release it had agreed to insure $500 million worth of the county's new sewer debt. Carrington said bond insurers had agreed to $40 million of concessions, while hedge funds agreed to concessions of $17.5 million.
"The county may now take the final steps to exit the bankruptcy we entered in 2011," Jefferson County Commissioner Joe Knight said at a county commission meeting in Birmingham.
A federal judge, scheduled to review the revised plan on Nov. 12, still must approve the renegotiated deal. A bond sale is expected late this year, if the judge approves the plan.
The average recovery for defaulted municipal bonds since 1970 has been nearly 80 cents on the dollar, Moody's Investors Service said.