Recently: Alabama county wants $1.3 billion debt reduction: report
ATLANTA (Reuters) - Alabama's Jefferson County wants creditors to wipe $1.3 billion from its bond debt as part of a settlement plan, a local newspaper said in a report that a senior county official said on Monday was broadly accurate.
Settlement talks this month with creditors, including JPMorgan Chase, are part of a bid to resolve a county financial crisis over a $3.2 billion sewer debt and avert what would be the largest municipal bankruptcy in U.S. history.
The Birmingham News reported on Sunday that the county also wanted creditors to accept single-digit annual rate increases for sewer system customers and to create a relief fund for struggling ratepayers.
One of the county's five commissioners said on Monday the story was broadly accurate.
"The numbers are pretty close," said County Commissioner Joe Knight. Other commissioners declined to comment.
Previously, commissioners have said they will not disclose details of their position while negotiations with creditors are ongoing, particularly during a 30-day "standstill" period for talks that is due to end July 29.
"It (a possible deal) is still much of a moving target. Of course we haven't heard back from the creditors. There are still a lot of stars to line up to get this deal done," Knight told Reuters.
"In order for a final resolution, the general fund and education warrants will have to be addressed as well," he said.
Under the plan, the county would have to borrow $2.135 billion to refinance the sewer debt, with $1.86 billion available to pay the existing debt and $213 million for a debt service reserve fund, the newspaper said.
The county, which includes the state's biggest city, Birmingham, would also have to create a separate public corporation to operate the sewer system and issue the refinancing debt.
It would also have to suspend or settle outstanding litigation, the newspaper said.
$1.3 billion is 40.6% of the current $3.2 billion bond debt. If it's agreed upon, I expect a smaller number, but the County should start with a big number to negotiate into a final resolution of how much bondholders will lose.
Jefferson County, which has been in bankruptcy denial for the greater part of the past 1-3 years is still struggling to avoid the obvious. Whether it's in bankruptcy or not, a bond deal has to be part of their financial solution, there's just no way they resolve their financials without wiping out some debt.
For those who feel the rich need to pay more, well instead of higher taxes for the rich, bond losses for the rich could be the next best thing. Whether they are or aren't, muni bond holders will be viewed as the weathly.
What's far more interesting is the impact nationally this could have for municipalities. Most political bodies are deathly afraid of going after unions, and the public would rather see rich bondholders take a loss first before cutting more people and services or raising taxes.
The question has to be: if Jefferson County is successful in negotiating bond losses, will Jefferson County be the first Domino? Will we see an out break of municipalities hitting up bondholders for losses to avoid the dreaded bankruptcy? It's the equivalent of a short sale instead of a foreclosure!
Hope all is well.
J.D. Rosendahl, Rosey