June 4, 2013 / 9:41 PM / 4 years ago

UPDATE 2-Alabama county strikes bankruptcy deals

* Jefferson County deals include haircuts for JPMorgan, others

* Agreements should speed end of landmark bankruptcy

* County sees $200 million in savings over 2011 agreement

By Melinda Dickinson

BIRMINGHAM, Ala., June 4 (Reuters) - Creditors holding most of the massive sewer debt that bankrupted Alabama’s Jefferson County have agreed to deals that could help end the largest U.S. municipal bankruptcy, with JPMorgan Chase & Co agreeing to a $842 million “haircut.”

The deals, approved on Tuesday by county commissioners, appear to clear a path for the county to win acceptance by a federal judge of a workout plan to resolve the landmark $4.2 billion bankruptcy, filed in November 2011.

If implemented, the workout and the deals would impose the largest losses on municipal bondholders by a big U.S. local government since the 1930s.

JPMorgan, a big holder of the county’s $3.1 billion of sewer warrants, agreed to give up about $842 million of the $1.218 billion of sewer debt it holds, according to a county document. A spokesperson for JPMorgan declined to comment.

In addition, JPMorgan gave extra, unspecified concessions to minimize the losses of other sewer creditors, according to a county terms sheet.

JPMorgan in 2009 paid $75 million to the county and agreed to drop credit-default swaps claims valued at $657 million as part of a settlement with federal regulators over secret payments connected to Jefferson County bond deals.

“In all, JPMorgan will give up about 88 percent of its total claims related to the sewers,” the county said.

Bond insurers Financial Guaranty Insurance Co (FGIC), Assured Guaranty Ltd and a unit of Syncora Holdings Ltd also signed “plan support agreements,” as did seven hedge funds, the county said.

Together, these creditors hold about $2.4 billion of Jefferson County sewer warrants that were a key driver in the county’s bankruptcy, which was partly caused by local corruption and loss of a local tax.

A spokeswoman for Assured had no immediate comment, and representatives for FGIC and Syncora could not immediately be reached for comment.

As part of the agreements, the county will raise sewer rates by 7.41 percent a year over four years and the creditors will receive $1.835 billion. The county will also refinance the sewer debt.

The county, which has struck smaller agreements with other non-sewer creditors, is readying a plan of adjustment that must be approved by a federal bankruptcy judge before the local government can leave bankruptcy protection.

Officials of Jefferson County, home to Birmingham, a regional business center, have in recent months struck deals with general obligation and other non-sewer creditors but before Tuesday reported no progress with sewer creditors.

In the Chapter 9 municipal bankruptcy, the county had exclusive authority to hammer out settlement terms. And while the terms must be considered equitable to creditors, a federal judge approving a plan of adjustment can force dissenting creditors to accept debt restructurings and other terms.

County officials said they now have owners of nearly 80 percent of the sewer debt in negotiated deals, which should cost the county $200 million less than a tentative $2.05 billion agreement reached but never implemented in 2011.

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