Alabama county faces looming debt crisis deadline

Reuters News
|
Posted: Jul 25, 2011 2:38 PM
Alabama county faces looming debt crisis deadline

By Matthew Bigg

ATLANTA (Reuters) - Alabama's Jefferson County could decide on Thursday whether to settle its $3.2 billion sewer bond debt or pursue what would be the largest municipal bankruptcy in U.S. history.

The county commission called a special session for Thursday with agenda items including bankruptcy, a settlement and an extension of the 30-day "standstill" period established to pursue talks with creditors, who include JP Morgan Chase. That agreement is set to expire on Friday.

One item is authorizing county commission President David Carrington to hire the law firm of Klee, Tuchin, Bogdanoff & Stern, LLP. The firm helped Orange County, California, through its bankruptcy in 1994.

Hiring the firm, which made a presentation to the commission last Thursday, would appear to signal that bankruptcy has moved sharply up the agenda over a bond debt crisis that has dragged on since 2008 and a more recent crippling shortfall in its general fund.

The general fund shortfall and related outstanding general fund warrants, or bond debts, involves tens of millions of dollars rather than billions but commissioners and analysts argue it presents the most immediate crisis the county faces.

"Jefferson County Commission will conduct a Special Meeting at 1:00 p.m., Thursday, July 28, 2011, in the Jefferson County Commission Chamber ... for one or more of the following purposes," a commission notice said.

One item on the agenda was to: "Approve a resolution authorizing the President to execute and counsel for the County to file a Petition under Chapter 9 of the United States Bankruptcy Code."

The county this month made what Carrington described as an "extremely complex" settlement proposal to creditors, but gave no details.

Another commissioner described as roughly accurate a report that the proposal included shaving $1.3 billion from the debt and agreeing not to raise sewer revenues by more than 10 percent.

By the end of last week the commission heard no word from creditors, according to Carrington. Analysts say negotiations could be going on behind the scenes even if no formal response has been made.

"If Friday (the standstill deadline) passes and nothing has happened the county has lost credibility," said Melissa Woodley, finance professor at Alabama's Samford University.

"It sounds like the will to file Chapter 9 (bankruptcy) is there this time," she told Reuters.

The county faces a separate crisis over its general fund, which has faced a substantial cash shortfall since March, when a judge ruled that a key tax for the county was unconstitutional.

(Additional reporting by Melinda Dickinson; editing by Neil Stempleman)