* Deal covers county general obligation bonds
* Agreement comes ahead of promised county workout plan
* County says bonds will shift to fixed-rate from variable
By Melinda Dickinson
BIRMINGHAM, Ala., May 14 As Alabama's Jefferson
County readies a workout proposal for its landmark $4.2 billion
bankruptcy, officials on Tuesday announced an agreement with
creditors JPMorgan Chase and Bayerische Landesbank
covering $105 million of defaulted debt.
The deal, one of a series the county has reached since
filing the biggest U.S. municipal bankruptcy in late 2011,
covers the county's 2001b general obligation warrants and was
expected to be approved on Thursday by the Jefferson County
The Jefferson County case is seen as a testing ground for
how bondholders fare when a local issuer breaks under excessive
financial pressure. The bankruptcy is the result of debts taken
on in a costly overhaul of the county's sewer system.
The agreement announced on Tuesday saves the county $2
million in fees and interest payments and shifts its variable
rate payments on the bonds issued for infrastructure projects to
a 4.9 percent fixed interest rate, officials said.
The deal will end the debt's default status and also waives
claims by the creditor banks of $10 million of other interest
since the bankruptcy, according to a briefing note from the
Jefferson County, which last week told a bankruptcy judge it
aimed to file a proposed plan to adjust its debts by late June,
hopes the deal encourages holders of the county's $3.2 billion
of sewer debt and other creditors to compromise, officials said.
"We are cautiously optimistic as we work toward a cram
down," Commissioner Joe Knight said on Tuesday. "It would be
better to reach a consensual agreement, for it not to be
adversarial. But we need to be prepared for whatever comes."
Jefferson County already has in place deals with creditors
Ambac Assurance Corp and Depfa Bank Plc on some claims and has
slashed spending by laying off workers, closing some operations
and reducing services since 2011.
The chief bankruptcy lawyer for Jefferson County, whose
finances were wrecked by soured sewer debt and a court order
killing a local tax, last week reported "substantial progress"
toward a consensual agreement with Wall Street banks, hedge
funds, insurers and creditors.
But holders of sewer debt, including JPMorgan, have shown
little willingness to give ground and may be faced with
non-negotiated terms that can be approved without their
agreement, according to county officials.
Tuesday's $105 million agreement includes terms that allows
JPMorgan to exit the GO warrants agreement, according to one of
the bankruptcy lawyers for the county.
"If JPMorgan and the county do not reach a satisfactory
agreement over the sewer debt, JPMorgan has the right to
withdraw from the agreement," attorney Lee Bognanoff said.