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Alabama county emerges from second-largest municipal bankruptcy

Source: Reuters - Tue, 3 Dec 2013 11:12 PM
Author: Reuters
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By Melinda Dickinson

BIRMINGHAM, Ala., Dec 3 (Reuters) - Alabama's Jefferson County on Tuesday closed on a $1.78 billion sewer bond deal and brought an end to what had been the biggest U.S. municipal bankruptcy before Detroit filed for court protection from creditors in July.

On the same day that Detroit, a battered industrial center, won an eligibility order from a federal judge allowing its Chapter 9 bankruptcy to proceed, Jefferson County declared an end to its $4.2 billion case filed on Nov. 9, 2011.

A U.S. judge last month approved an unprecedented settlement between the county and creditors that locked in Wall Street losses easily topping $1 billon. The settlement also calls for 40 years of rate hikes for customers of a county sewer system at the heart of the county's financial crisis.

Home to regional business hub Birmingham, the county's finances were also undone by faulty financing techniques, political corruption and the loss of a local tax that had brought in $60 million a year.

County officials said they had closed on the $1.78 billion sale that had required tax-free interest rates of as much as 8 percent in early morning and formally exited Chapter 9 about midday.

The bond proceeds will pay off JPMorgan Chase and other owners of $3.1 billion of defaulted sewer debt at about 54 cents on the dollar. Such losses for municipal bond owners have not been seen the Great Depression, according to analysts.

County officials at a news conference in Birmingham said the government would now look to the future and aimed to rebuild a reputation sullied by the headline-making bankruptcy.

"We will have to rebuild the county's brand," said Jefferson County Commission President David Carrington, a key figure in bargaining with creditors.

"Chapter 9 is not a great path to take," said Dan Heckman, municipals strategist at U.S. Bank. "It's very expensive, from a legal standpoint and penalized by higher interest rates. It's a very costly experience."

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