Alabama
county emerges from 2nd-largest municipal bankruptcy
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[December 04, 2013]
BIRMINGHAM, Alabama (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.
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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 November 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.
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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."
[By Melinda Dickinson]
(Additional reporting and writing by Michael Connor in Miami;
editing by Lisa Shumaker)
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