Joel R. Glucksman
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Jefferson County, Alabama and Creditors Reach Deal to Exit Municipal Bankruptcy
Author: Joel R. Glucksman
Date: June 18, 2013
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Jefferson County, Alabama, has announced the details of an agreement it reached with creditors that will enable the distressed county to formally exit municipal bankruptcy.
The county has agreed to refinance its existing debts by June 30 in an effort to officially emerge from bankruptcy law protection by November 2013. According to the terms of the agreement, Jefferson will pay its largest creditors, who include JPMorgan Chase, seven hedge funds, and a group of bond insurers, $1.84 billion, which represents 60 percent of the total balance it owes.
Collectively, the creditors hold $2.4 billion of Jefferson County’s debt, but JPMorgan holds the largest percentage at $1.22 billion, and has agreed to forgive $842 million of the balance. The bank will carry the most substantial losses after the bankruptcy has been completed, after giving up its rights to collect a total of $1.57 billion in debt following a separate 2009 settlement with the county.
The hedge funds – which are owed roughly $872 million – will collect more than 80 cents on the dollar under the terms of the deal. Lastly, the county will pay insurers roughly $165 million of the $315 debt balance owed, as well as $25 million to cover any claims filed against the insurers by creditors who aim to recover their losses.
U.S. Bankruptcy Judge Thomas Bennett agreed to the refinancing timeline, but the overall deal is still subject to court approval in November.
Although the county reached an agreement with its largest debt holders, it is still working to establish a plan to pay school warrant holders in full and strike a deal with general obligation debt holders, Bloomberg reports. In an effort build revenue and help repay its debt obligations, Jefferson County residents will see their sewage rates increase by 7.4 percent annually for a four-year period.
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