Jefferson County Alabama Prepares for a Possible Bankruptcy
The Jefferson County Commission in Alabama has told its attorneys to prepare a bankruptcy filing in case it cannot reach an agreement on how to escape from the county’s over $3 billion of bond debt.
The county, which includes Alabama’s largest city, Birmingham, is prepared to file Chapter 9 Bankruptcy if it cannot reach an agreement with its creditors in order to seek relief from the debt it incurred to build a sewer system.
County officials issued the bonds with interest rates that reset frequently during a time when borrowing money was cheap. The strategy intended to keep costs down as interest rates were declining, but with the credit crunch, interest rates on Jefferson County’s debt has risen to as high as 10% in some cases.
The county has attempted, unsuccessfully, to refinance the debt, according to reports. It recently replaced bankers and advisors with a new law firm to handle the negotiations with its creditors led by JP Morgan Chase.
Bettye Fine Collins, Jefferson County Commission president, recently told reporters that Alabama Governor Bob Riley has also agreed to help the county negotiate with Wall Street on a deal to avert a bankruptcy filing.
No timetable was set for the filing, but an agreement with creditors that provided the county time to work toward a solution expires this week.
If the county reneges on the debt, it would be the largest municipal bond default ever in the United States. It would surpass the Washington Public Power Supply System’s $2.25 billion default in 1983 of revenue bonds sold for nuclear plants.
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