BIRMINGHAM, Alabama, Sept 25 (Reuters) - Lawyers for Alabama’s Jefferson County and bond insurers were set to battle on Friday over an emergency request to give control of the county’s heavily indebted sewer system to a court receiver.
Home of Alabama’s biggest city, Jefferson County is negotiating with Wall Street creditors against a Tuesday deadline on restructuring $3.2 billion of troubled sewer-system debt. If the talks fail, the county has threatened to file what would be America’s biggest municipal bankruptcy since 1994.
Syncora Guarantee, a unit of Syncora Holdings Ltd (SCA.N), and FGIC Corp-unit Financial Guaranty Insurance Co, back much of the county’s sewer debt and last week filed a lawsuit. They asked a U.S. judge to appoint a receiver for the sewer system and order rate hikes as ways to deal with the soured debt.
County officials condemned the lawsuit, saying the action was ill-timed and could hamper the restructuring talks that now involve Alabama Gov. Bob Riley. Jefferson County has not formally responded to the lawsuit, but county officials have said the county would countersue the insurers.
This week the insurers asked that the matter of appointing a receiver be considered on an emergency basis, and U.S. District Court Judge David Proctor has scheduled for Friday morning a teleconference for the lawyers for the county insurers, local officials said.
“I don’t know how they could fast track a receiver request while negotiations are on-going,” Jefferson County Commissioner Bettye Fine Collins said in an interview.
Syncora and FGIC have signed off on standstill agreements that have allowed the restructuring talks to continue, but the companies said in legal papers that the county’s management of the sewer system was forcing them to pay out tens of millions of dollars. Their total exposure, through guarantees of payments on the debt, totals $2 billion.
Collins and other county commissioners have said Jefferson County was unlikely to seek another standstill, or forbearance, agreement holding back debt default penalties, if a deal with creditors has not been reached by Tuesday.
“Hope will be alive until Tuesday,” Collins said.
Jefferson County’s sewer debt and related interest-rate swaps were snared in early 2008 by the collapse of auction-rate debt markets and the global credit crisis. Leading Wall Street rating agencies have cut the county’s sewer debt to junk-bond status.
And on Wednesday, Standard & Poor’s slashed to default status warrants tied to non-sewer, general obligation debt issued by Jefferson County because the county had not made a principal payment on the bank warrants that had been due Sept. 15. (Writing and additional reporting by Michael Connor in Miami; Editing by Kenneth Barry)