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Another Take From Jefferson County

BRADENTON, Fla. - Several Jefferson County, Ala., officials on Friday said they are continuing to negotiate a resolution to the county's sewer debt crisis that doesn't resort to bankruptcy.

Officials made their position clear after head of the state's pension fund, David Bronner, laid out a proposal in a local newspaper on Thursday suggesting that Jefferson County seek protection from creditors by placing the sewer system in bankruptcy so that Retirement Systems of Alabama could purchase it.

Bronner said he would consider paying up to $2 billion for the sewer system, which has approximately $3.2 billion in outstanding debt mostly in troubled auction- and variable-rate securities. He reportedly said bondholders could pursue bond insurers for any shortfall. The story was posted on RSA's web site Friday under the title, "Bronner Proposal on Jefferson County Sewer Bonds."

Jefferson County Commissioner George Bowman was in New York for three days last week with the county's new negotiating team discussing a new restructuring plan when news of Bronner's proposal broke.

"For [Bronner] to make such a suggestion goes counter to what we are trying to do," Bowman said. "We are not following his suggestion. We are continuing with the plan we presented. We believe it will satisfy our creditors and bankers and bondholders and that it will settle all of our obligations ...without asking anyone else to step in."

Bowman said he, Commission President Bettye FineCollins, and Commissioner Shelia Smoot held a press conference Friday morning rejecting any plan that involves bankruptcy and default.

Bronner could not be reached for comment.

Financial Guaranty Insurance Co. had a net par exposure of $1.19 billion to Jefferson County's sewer debt and XL Capital Assurance Inc. had exposure $811 million of the debt as of April 10.

"At this point we are not commenting on Dr. Bronner's proposal," said XLCA spokesman Michael Gormley. FGIC spokesman Brian Moore said the company also declined to comment.

Jefferson County wants to restructure the sewer bonds, which now have junk ratings from Moody's Investors Service and Standard & Poor's.

Some investors have said they are concerned mostly about the fact that they've received little information about their investments or what the county is attempting to do to resolve the crisis. One expert said insurance should mitigate investor's concerns about a bankruptcy filing.

"Basically, I think for most bondholders the blow will be mitigated by the fact that they are insured as long as the insurance is ironclad," said Richard Ciccarone, managing director and chief research officer at McDonnell Investment Management LLC.

There are indications that the county's latest restructuring plan, which does not involve bankruptcy, is being considered on Wall Street.

Bowman said negotiations, despite the "distraction" created by Bronner's proposal, went well. He also said that the county's finance team is continuing to negotiate an extension of the forbearance agreements that are now set to expire July 31. But he also predicted that the extension may cost the county more because of dissension among the county commissioners over the Bronner plan.

Commissioners Jim Carns and Bobby Humphryes have indicated they support Bronner's plan.

But Bowman said the majority of the commission, with himself, Collins, and Smoot, are solidly behind the plan presented in New York last week.

The plan primarily will consist of refinancing approximately $900 million of sewer debt with revenue from an existing sales tax and refinance about $700 million of sewer debt with revenues from an existing occupational license tax, while stabilizing the remaining debt with a portion of sewer revenue fees. Other details about the plan were not immediately available.

It is being negotiated by the county's new finance team, which includes Sterne Agee & Leach Inc., Morgan Keegan & Co., and Citi, as well as the law firm Haskell, Slaughter, Young & Rediker LLC.

The county earlier this month dismissed a financial team led by Merrill Lynch & Co.

"It's a new day, it's a new team, and a new focus," Bowman, a retired two-star general, said on Friday. "Jefferson County is dedicated and committed to paying its debt in full and meeting all of its obligations. Jefferson County will not declare bankruptcy nor will we default on our loans."

Bowman said the previous team's plan had three unacceptable elements.

It proposed a sewer rate increase of 2.85% per year compounded for 40 years. Portions of the sewer system are in some of the poorest neighborhoods in Jefferson County, Bowman said.

The previous proposal suggested using $10 million from the county's general fund for operation and maintenance of the sewer system, but Bowman said the money isn't there.

A third aspect of the former plan called for creating a new, unelected entity responsible for setting sewer rates.

"That would be an abrogation of our authority as commissioners," Bowman said. "The former team felt that they had to have those elements in the plan and they were not willing to make any other consideration. It is for that reason we decided they were terminated and the new team is going in a different direction."

Bowman said he felt the county made good progress presenting the newest plan to banks, bond insurers, and rating agencies last week.

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