Jefferson County, Creditors Reach Deal to End Bankruptcy
By Steven Church, Margaret Newkirk & and Kathleen Edwards - Jun 5, 2013 12:01 AM ET
Jefferson County, Alabama (BEESAL), reached an agreement to pay its largest creditors $1.84 billion, or 60 percent of what they’re owed, as part of a plan to end the biggest U.S. municipal bankruptcy by the end of the year.
JPMorgan Chase & Co (JPM)., seven hedge funds and a group of bond insurers agreed to the deal, Kenneth Klee, an attorney for Jefferson County, said today at a county commission meeting in Birmingham. Together, those parties hold about $2.4 billion, or about 78 percent, of the county’s sewer debt.
Residents wait in line outside the Jefferson County Courthouse in Birmingham, Alabama, U.S., on Monday, Oct. 24, 2011. committee. Photographer: Butch Dill/Bloomberg
JPMorgan (JPM), which holds $1.22 billion of debt, will forgive $842 million. Under the current deal and a previous settlement, the bank will have either paid the county, or given up the right to collect, $1.574 billion dollars.
The settlement ends more than 18 months of bankruptcy courtbattles between the country and its biggest creditors over how much the jurisdiction can afford to pay on more than $3 billion it borrowed to expand and improve the county’s sewage system.
“This provides a template for providing peace in Jefferson County,” Klee said at the hearing.
The county will be in court today in a previously scheduled status conference to brief U.S. Bankruptcy Judge Thomas Bennett on the agreement.
The county’s attorneys, led by Klee’s Los Angeles law firm, Klee, Tuchin, Bogdanoff & Stern LLP., have won bankruptcy court rulings that allowed the county to maintain control of the sewer system and its revenue stream, which is pledged as collateral for the warrants.
Under the terms of the agreement, Jefferson County will pay sewer-warrant holders a total of $1.835 billion of the $3 billion owed, according to a one-page summary distributed at the commission meeting today.
Hedge funds owed about $872 million will collect more than 80 cents on the dollar, according to the agreements, which were made public today. The hedge funds will also help backstop the refinancing to ensure that the county can raise all of the money it needs.
The hedge funds include Brigade Capital Management LLC, Claren Road Asset Management LLC, Fundamental Advisors LP and Monarch Capital Master Partners LP, according to court records filed last year.
The insurers, including Assured Guaranty Municipal Corp., Syncora Guarantee Inc. and Financial Guaranty Insurance Co., will get $165 million. They claimed to be owed $315 million.
The county will also pay as much as $25 million in any claims filed against the insurers by creditors seeking to recover losses, according to the agreements.
The county will pay creditors about $200 million less than was proposed in a tentative agreement that failed just before the county filed bankruptcy in 2011.
Elizabeth C. Seymour, a spokeswoman for JPMorgan, declined to comment on the accord.
The deal is made up of three agreements that require the creditors to support Jefferson County’s reorganization proposal. That proposal, known as a plan of adjustment, must be approved by Bennett, who is overseeing the county’s Chapter 9 case in Birmingham.
The deal will “form the backbone of our plan” to adjust the county’s debt, Jimmie Stephens, chairman of the county commission’s finance committee, said. “I look forward to restoring Jefferson County to its former position of leadership.”
Under the settlement, the county will raise sewer rates 7.41 percent annually for four years. Those rates could go slightly higher if interest rates rise before the refinancing closes.
Warrant holders who are owed more than $500 million aren’t part of the deal. They will have a choice of collecting 65 cents on every dollar they are owed or 80 cents on the dollar, if they give up their right to collect money from the insurers.
Those warrant holders and other creditors have the right to vote on the plan of adjustment. Bennett will take that vote into consideration when deciding whether to approve the plan.
The bankruptcy is tied to a sewer refinancing tainted by political corruption. In 2009, JPMorgan agreed to a settlement with the Securities and Exchange Commission over payments its bankers allegedly made to people tied to county politicians to win business.
JPMorgan paid the county $75 million in that settlement and has given up more than $657 million in swaps claims it held.
The case is In re Jefferson County, 11-bk-05736, U.S. Bankruptcy Court, Northern District ofAlabama (Birmingham).
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