Thursday, November 10, 12:59 AM
Largest ever municipal bankruptcy of $4.15B sought in Alabama over sewer project, other debt
MONTGOMERY, Ala. — Alabama’s most populous county chose bankruptcy over further bargaining with creditors to wrest control of its beleaguered sewer system from a court-appointed receiver, bolster its pleas for legislative action to prop up a massive revenue shortfall and wipe away as much of its whopping $4.15 billion in debt as possible.
Jefferson County’s Chapter 9 filing on Wednesday — the largest municipal bankruptcy in U.S. history — gives it protection from its creditors while it develops and negotiates a plan for adjusting its debts. It could accomplish that by extending debt maturities, reducing the amount of principal or interest, or refinancing the debt by obtaining a new loan.
But there are risks. Perhaps the biggest is the potential impact on the county’s 658,000 residents, who could be asked to endure even higher sewer rates than were contemplated under the out-of-court deal with creditors that fell through. That’s because the sewer debt, which represents the bulk of what the county owes, is secured against net revenues from the sewer system, and the court will determine how much of that debt remains on the books and how the county will repay it.
“The county did not file this case rashly, improperly, or with any improper intent,” its lawyers said in court papers. “Rather, it did so deliberately and grudgingly, yet with the desire to effect a prompt, efficient adjustment of its debts.”
The problems were years in the making.
Its debt ballooned after a federally mandated sewer project was beset with corruption, court rulings that didn’t go its way and rising interest rates when global markets struggled.
Since 2008, Jefferson County tried to save itself the cost and embarrassment of filing for bankruptcy. But after three years of trying to find another way, commissioners, by a vote of 4-1, decided it was time to bring the issue to an end and remove the cloud hanging over the county, home to state’s largest city of Birmingham.
“Jefferson County has, in effect, been in bankruptcy for three years,” said Commissioner Jimmie Stephens, who made the motion to file for protection in federal bankruptcy court in northern Alabama.
Just two months ago, the county seemed to strike a deal with creditors that would let it avoid making history.
Talks broke down and the sides couldn’t come together on how to pay about $140 million of the total, Stephens said. Also weighing heavily in the decision, according to the filing, were the actions of a receiver appointed for the sewer system as part of the settlement efforts. The county’s lawyers say the receiver wanted to raise sewer rates 25 percent and demanded the county immediately pay him $75 million in cash from its general funds. So, instead of continuing to negotiate, the commissioners decided to take the matter to court.
Ben Brooks, a professor of finance at the University of Alabama, said not all is lost.
“Bankruptcy is a good thing. The sooner Jefferson County can get this behind them the better,” he said.
The financial questions and fallout from the fraud and corruption in the sewer program has been hanging over Jefferson County for years and it had to stop.
Largest ever municipal bankruptcy of $4.15B sought in Alabama over sewer project, other debt
MONTGOMERY, Ala. — Alabama’s most populous county chose bankruptcy over further bargaining with creditors to wrest control of its beleaguered sewer system from a court-appointed receiver, bolster its pleas for legislative action to prop up a massive revenue shortfall and wipe away as much of its whopping $4.15 billion in debt as possible.
Jefferson County’s Chapter 9 filing on Wednesday — the largest municipal bankruptcy in U.S. history — gives it protection from its creditors while it develops and negotiates a plan for adjusting its debts. It could accomplish that by extending debt maturities, reducing the amount of principal or interest, or refinancing the debt by obtaining a new loan.
But there are risks. Perhaps the biggest is the potential impact on the county’s 658,000 residents, who could be asked to endure even higher sewer rates than were contemplated under the out-of-court deal with creditors that fell through. That’s because the sewer debt, which represents the bulk of what the county owes, is secured against net revenues from the sewer system, and the court will determine how much of that debt remains on the books and how the county will repay it.
“The county did not file this case rashly, improperly, or with any improper intent,” its lawyers said in court papers. “Rather, it did so deliberately and grudgingly, yet with the desire to effect a prompt, efficient adjustment of its debts.”
The problems were years in the making.
Its debt ballooned after a federally mandated sewer project was beset with corruption, court rulings that didn’t go its way and rising interest rates when global markets struggled.
Since 2008, Jefferson County tried to save itself the cost and embarrassment of filing for bankruptcy. But after three years of trying to find another way, commissioners, by a vote of 4-1, decided it was time to bring the issue to an end and remove the cloud hanging over the county, home to state’s largest city of Birmingham.
“Jefferson County has, in effect, been in bankruptcy for three years,” said Commissioner Jimmie Stephens, who made the motion to file for protection in federal bankruptcy court in northern Alabama.
Just two months ago, the county seemed to strike a deal with creditors that would let it avoid making history.
Talks broke down and the sides couldn’t come together on how to pay about $140 million of the total, Stephens said. Also weighing heavily in the decision, according to the filing, were the actions of a receiver appointed for the sewer system as part of the settlement efforts. The county’s lawyers say the receiver wanted to raise sewer rates 25 percent and demanded the county immediately pay him $75 million in cash from its general funds. So, instead of continuing to negotiate, the commissioners decided to take the matter to court.
Ben Brooks, a professor of finance at the University of Alabama, said not all is lost.
“Bankruptcy is a good thing. The sooner Jefferson County can get this behind them the better,” he said.
The financial questions and fallout from the fraud and corruption in the sewer program has been hanging over Jefferson County for years and it had to stop.
Comment